Every now and then, I like to keep track of companies that 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…
Every now and then, I like to keep track of companies that 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. GSH Corporation Ltd (SGX: BDX)
GSH, which exited its legacy electronics and IT distribution business in 2014, is now a property developer and investor with a focus on Southeast Asia. The company’s real estate portfolio includes a 51% stake in GSH Plaza, a commercial building located in the heart of Singapore’s central business district.
In the month of May thus far, GSH has bought shares on multiple occasions, purchasing a total of 2.583 million shares for a sum of slightly less than S$647,000.
GSH’s buybacks actually started in earnest after the company released its 2016 first-quarter results on 6 May 2016. Strong growth was seen. GSH’s revenue for the quarter soared 64% to S$23.46 million while a loss of S$363,000 in the first-quarter of 2015 had reversed into a profit of S$2.8 million.
But going forward, GSH thinks that the “outlook for commercial properties [in Singaore] is still subdued” given that the global economy is “poised for a slowdown” and property cooling measures are still in place. It’s a similar story in Malaysia as the company expects the property market to continue to be “soft.”
Shares of GSH were last traded at S$0.255 yesterday, giving the company a price-to-book ratio of 1.36.
2. Sembcorp Industries Limited (SGX: U96)
SembCorp Industries is a bona fide conglomerate with its three business segments, namely, Utilities, Marine, and Urban Development & Others. The former two are by far the most important for SembCorp Industries and it’s worth noting that the conglomerate’s Marine business stems from its majority ownership of SembCorp Marine Ltd (SGX: S51).
Since the start of May, Sembcorp Industries has bought back shares of itself on three occasions (9, 10, and 11 May), spending slightly over S$810,000 to buy 300,000 shares.
Sembcorp Industries’ latest 2016 first-quarter results were released near the start of May. It wasn’t a good quarter. The company experienced a 18.9% decline in revenue to S$1.9 billion; the earnings picture was even dimmer as profit plunged by 24.7% to S$107 million. Sembcorp Industries’ woes came mostly from a slowdown in Sembcorp Marine, whose business has been affected by the weakness seen in the oil & gas industry.
At Sembcorp Industries’ closing share price of S$2.72 yesterday, the company has a trailing price-to-earnings ratio of just 10.4
Companies that are engaged in share buybacks are just a good starting point for investors looking for opportunities. It’s up to the individual investor to dig further and determine for him or herself whether a company’s shares are actually cheap or not.
To keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.
Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.
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.