Every now and then, I like to keep track of companies which have been buying back their own shares. That’s because share buybacks may be a sign that a company’s stock is undervalued. Peter Lynch, the legendary manager of the U.S.-based Fidelity Magellan Fund, also included buybacks as one of the criterion in his investing checklist. To Lynch, it’s a good sign if a company or its insiders are buying shares. Of course, management may be tasking the company to buy back shares for other reasons other than its stock being undervalued (some other reasons would be to offset dilution)….
Every now and then, I like to keep track of companies which have been buying back their own shares. That’s because share buybacks may be a sign that a company’s stock is undervalued.
Peter Lynch, the legendary manager of the U.S.-based Fidelity Magellan Fund, also included buybacks as one of the criterion in his investing checklist. To Lynch, it’s a good sign if a company or its insiders are buying shares.
Of course, management may be tasking the company to buy back shares for other reasons other than its stock being undervalued (some other reasons would be to offset dilution). And even if management feels that the stock’s undervalued, they may well be wrong in their assessment too. But, companies that have been buying back their own shares are still worth digging further into.
With these in mind, let’s take a look at two companies that have been engaged in buybacks these past few weeks.
1. Centurion Corp Ltd (SGX: OU8)
Centurion is the result of a reverse takeover in 2011 which also brought a new business direction for the company. The company was a storage disc manufacturing outfit but now its focus lies in the workers and student accommodations business.
The company currently has accommodation assets in a number of countries such as Singapore, Malaysia, Australia, and the United Kingdom. Its portfolio has 50,072 beds at the end of 2015 and the company expects to increase its capacity to 74,500 beds by end-2018.
The accommodations outfit has been busy buying back shares since its results for the whole of 2015 was released on 23 February 2016. From then to now, the company has bought shares on 14 different occasions, spending a total of S$1.07 million on 2.81 million shares.
Centurion had a pretty good year in 2015 with total revenue coming in 24% higher at S$105 million on the back of an expansion in its accommodation business in Singapore and overseas. Excluding any fair value and one-off gains, its core profit stepped up by 14% to S$35.6 million.
Centurion’s shares closed at S$0.38 yesterday. At that price, it has a low price-to-earnings (P/E) ratio of just 8.3 based on its trailing earnings.
2. AEM Holdings Ltd (SGX: AWX)
AEM is a company that provides solutions for equipment systems, precision components, and certain manufacturing services. The company has manufacturing plants in Singapore, Malaysia (Penang), and China (Suzhou), and sources its revenue from many countries such as the U.S., China, Malaysia, and more.
In a similar fashion to Centurion, AEM has bought shares of itself on multiple occasions (10 to be exact) after it had released its full-year earnings for 2015 on 23 February 2016. All told, AEM had purchased 81,900 shares in total for a collective sum of slightly less than S$31,000.
In AEM’s latest full-year earnings, the company reported a 54.3% jump in revenue to S$47.6 million as well as a significant improvement in the bottom-line – a loss of S$40 million in 2014 had become a profit of S$5.8 million.
AEM’s management team commented in the earnings release that they “continue to see positive demand” from the company’s customers. But, the company also cautioned that there’s global economic uncertainties and “softness” in the semiconductor industry. The company’s shares closed at a price of S$0.44 yesterday, giving the firm a low trailing PE ratio of just 3.4
Companies that are engaged in share buybacks are just a good starting point for investors looking for opportunities. It’s up to us to dig further and determine for ourselves whether a company’s shares are actually cheap or not.
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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.