One of the more commonly used strategies by investors is to follow insider transactions. That?s something even the legendary super investor Peter Lynch did.
In his book One Up on Wall Street, Lynch shared investing checklists that he had used and one of the criteria was this: ?Whether insiders are buying and whether the company itself is buying back its own shares. Both are positive signs.?
Consistent insider purchases may indicate that a company?s management thinks that the stock is undervalued. They could be wrong of course, but companies that have seen insiders buy shares consistently are still worth some further research.
One of the more commonly used strategies by investors is to follow insider transactions. That’s something even the legendary super investor Peter Lynch did.
In his book One Up on Wall Street, Lynch shared investing checklists that he had used and one of the criteria was this: “Whether insiders are buying and whether the company itself is buying back its own shares. Both are positive signs.”
Consistent insider purchases may indicate that a company’s management thinks that the stock is undervalued. They could be wrong of course, but companies that have seen insiders buy shares consistently are still worth some further research.
Meanwhile, it’s worth noting that insider selling need not mean that bad news about the company is around the corner – there are many reasons why insiders may want to sell.
With these in mind, let’s take a look at two companies that have recently seen insiders buying shares, or in other words, putting their money where their mouth is.
1. Q & M Dental Group (Singapore) Limited (SGX: QC7)
Dental healthcare services provider Q & M was founded 20 years ago in 1996. At the end of 2015, the company had 69 outlets in Singapore that provide various forms of dental and medical services. Beyond those, Q & M also had interests in (1) dental equipment-related businesses in Singapore, Malaysia, and China, and (2) dental outlets and hospitals in Malaysia and China.
On 9 March 2016, Narayanan Sreenivasan, the non-executive independent chairman of Q & M’s board, had bought 50,000 shares for a total sum of nearly S$34,000. With that, his total interest in the firm had increased slightly from 0.03% to 0.04%.
Sreenivasan had made his purchase roughly a week after Q & M had released its results for the year ended 31 December 2015. The dental outfit had a good year, with revenue jumping by 24% to S$124 million and its profit surging by 33% to S$11.4 million. Q & M’s shares closed at S$0.685 yesterday. At that price, the company has a lofty price-to-earnings ratio of 46.
2. Ho Bee Land Ltd (SGX: H13)
Ho Bee Land is a real estate development and investment company with a portfolio covering high quality residential, commercial, and high-tech industrial projects. Some of Ho Bee Land’s more high-profile projects in Singapore include its development of residences in the exclusive Sentosa Cove area. Meanwhile the company also has a presence in Australia, China, and the United Kingdom.
On three occasions between 26 February and 9 March 2016, Chua Thian Poh, Ho Bee Land’s chairman and chief executive, had bought 1.14 million shares of the company in total for a sum of around S$2.2 million. The transactions had pushed up his total stake in the firm from 73.528% to 73.699%.
Shares of Ho Bee Land were trading at S$2.12 apiece yesterday at the market close. The company is valued at merely 0.5 times its latest book value at that price. Ho Bee Land’s latest earnings (for 2015) were released in late February and the company saw a 23% decline in its profit to S$242 million due mainly to lower fair value gains on its investment properties and an impairment charge made on a project in Sentosa. But, the firm’s book value still managed to increase by 8.5% from S$3.90 at end-2014 to S$4.23.
Ho Bee Land expects a tough year in 2016 but it thinks it has “substantial recurring income to face the headwinds.”
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.