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…
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.
Raffles Medical Group Ltd (SGX: BSL)
Raffles Medical Group is a healthcare services provider. It currently has two major business divisions. The Healthcare Services Division houses the company’s medical clinics, health insurance, and consultancy services. Elsewhere, the Hospital Services Division includes Raffles Medical Group’s specialist medical services and the activities in its namesake Raffles Hospital.
Raffles Medical Group had recently undergone a three-for-one share split in which every outstanding share had been split into three.
On 3 May 2016, Dr. Loo Choon Yong, chairman and co-founder of Raffles Medical Group, acquired 83,000 shares of the firm. The purchases were made at a pre-split price of S$4.76 (it would be S$1.59 after adjusting for the split). With that, Loo’s stake in Raffles Medical Group had been bumped up slightly from 51.382% to 51.396%.
Raffles Medical Group’s shares closed at S$1.59 yesterday. At that price, the firm’s valued at nearly 40 times trailing earnings.
In its latest 2016 first-quarter earnings report, the company saw its revenue grow by 23% to S$116.9 million. But, its profit had inched up by just 3.7% to S$15.5 million; higher staff costs were partly to blame for pressuring the firm’s profit margin.
Although Raffles Medical Group warned that “the more measured pace of economic growth in Singapore and the region may have a dampening effect on healthcare demand,” it thinks that it’s “positioned well for the future.” Barring “unforeseen circumstances,” Raffles Medical Group’s directors expect the company “to continue growing for the rest of the year.”
Micro-Mechanics (Holdings) Ltd (SGX: 5DD)
Founded in 1983, Micro-Mechanics is today in the business of designing, manufacturing, and marketing high precision tools, parts and assemblies. The company’s clients come from a number of different industries, such as semiconductor, medical, aerospace, and high technology.
On 5 May 2016, Girija Prasad Pande, an independent director of Micro-Mechanics, had bought 63,000 shares of the firm at an average price of S$0.80 each from the open market. As a result, his total interest in the firm had inched up from 0.10% to 0.14%.
Micro-Mechanics’ shares last changed hands yesterday at S$0.78. At that price, the company commands a P/E ratio and dividend yield of 9.1 and 6.3%.
In the company’s latest earnings’ release (for the fiscal third-quarter ended 31 March 2016), Micro-Mechanics had registered a 6.5% decline in revenue to S$12.5 million and a 26.5% drop in net profit to S$2.74 million. The company had cited sluggish market conditions in the technology and semiconductor sectors as reasons for its woes.
Going forward, investors can expect Micro-Mechanics to focus on implementing its 24/7 Machining and other strategies that are designed to improve operational efficiency and enhance customer value.
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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.