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.?
That?s because 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…
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.”
That’s because 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, putting their money where their mouth is.
- ABR Holdings Limited(SGX: 533)
You may have patronized Swensens or Gloria Jean’s Coffees outlets in Singapore without thinking about any common links between them. But, both are actually run by ABR Holdings.
ABR Holdings currently operates over 20 restaurants in Singapore and “remains one of the market leaders in the western casual dining category.” The company also manages a portfolio of F&B (food and beverage) sub-brands and franchises, including Yogen Fruz, Hippopotamus, and more.
On 21 and 22 April 2016, Ang Yee Lim, ABR Holdings’ managing director, snapped up 1.27 million and 730,000 shares of the firm respectively. The purchases were both done at an average price of S$0.70. With that, Ang’s stake in ABR Holdings had been bumped up from 45.775% to 46.77%.
ABR Holdings’ shares closed at S$0.70 yesterday and are valued at 18.4 times its trailing twelve months earnings. In its latest annual report released on 26th February 2016, the company saw total revenue slipping 2.1% while net profits eked up a 0.8% increase compared to the previous year. Fierce competition, tight labour regulations and higher operating costs were some of the reasons for the flat bottom-line growth as mentioned.
- Megachem(SGX: 5DS)
Megachem is a specialty chemical solutions provider with a 49,000 square feet manufacturing facility. It has integrated operations that include the manufacture of proprietary chemicals and the international distribution of specialty chemicals. With a network of 11 distribution and warehousing points in 9 countries predominantly in Asia, Megaham carries over 1,000 different types and grades of specialty chemicals for various applications.
On 21 April 2016, Mr. Tan Bock Chia, exective director of the firm, acquired 50,000 shares at an average price of S$0.33 each from the open market. As a result, his direct stake inches up from 18.49% to 18.52%.
Megachem last changed hands at S$0.33 each and commands a P/E ratio of 14.89. It also sports a distribution yield of 3.03%. In the company’s latest earnings’ release (for the fiscal full year ended 31 December 2015), Megachem had registered a slight 4.6% decline in revenue and a 2.9% uptick in net profits due to poor market conditions. The company plans to counter the sub-par performance by adjusting its portfolio focus to more resilient businesses and improving the operational excellence within.
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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.