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 buy shares, or in other words, eating more of their own cooking.
1. IX Biopharma Ltd (SGX: 42C)
iX Biopharma is a Singapore-based speciality pharmaceutical company that’s engaged in the development and manufacture of drugs for pain management and the treatment of male erectile dysfunction.
According to its website, iX Biopharma currently has three drugs under development, namely Wafermine, Wafernyl, and PheoniX. The first two are for pain management (the former’s for chronic pain while the latter’s specifically for cancer patients) and the last drug is for male erectile dysfunction.
Beyond the development of drugs, iX Biopharma also has a chemical analysis business which brought in 97% of the company’s S$3.03 million in total revenue in the quarter ended 31 December 2015.
Ko Kheng Hwa, an independent director on iX Biopharma’s board, had bought a total of 100,000 shares on two separate occasions this month (5 and 6 April) at a price of $0.38 each. The purchases had increased his stake in iX Biopharma from 0.044% to 0.06%.
Then, on 11 April 2016, Low Weng Keong, another independent director of iX Biopharma’s board, had paid S$0.38 per share for 200,000 shares of the company. As a result, Low’s interest in iX Biopharma had inched up from 0.051% to 0.085%.
iX Biopharma’s shares closed at S$0.375 yesterday, giving the whole company a market capitalisation of S$225 million. In the company’s latest earnings release (for the quarter ended 31 December 2015), iX Biopharma commented that it will be commencing a “pivotal study” for Pheonix and Phase 3 clinical studies for Wafermine in the near future.
2. Huationg Global Ltd (SGX: 41B)
Huationg is a civil engineering firm with roots that can be traced back to the early 1980s. Some of the company’s public sector projects include various works for the Downtown Line of Singapore’s Mass Rapid Transit (MRT) network and expressways in Singapore. The company has an A2 grading from the Building and Construction Authority (BCA) for two different categories.
Elsewhere, Huationg also has business interests in the sale of construction related equipment and consumables, such as recycled concrete aggregates and liquefied soil stabilizers.
On 6 April 2016, Patrick Ng, the chief executive of Huationg Global, had bought 43,900 shares of the company for just over S$5,600. Prior to the purchase, Ng already had control of 80.43% of Huationg’s shares; the 43,900 shares had pushed up his stake in the firm slightly to 80.46%.
The company’s latest results (for the full-year ended 31 December 2015) was mixed. While revenue saw a slight 2.4% dip to S$130.18 million, the company’s net profit attributable to shareholders had jumped by 25.5% to S$6.4 million. A 7.7% reduction in the company’s cost of goods and services had led to a 25% increase in the firm’s gross profit. This then trickled down to the bottom-line.
Huationg said in its earnings release that it “expects its business and financial performance to remain stable” in 2016. The company thinks that it is “well positioned in the niche area of civil engineering industry and intends to capitalise on its competitive strengths to bring about enhanced values [sic] for the shareholders.”
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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.