This Blue Chip Stock Has Been Buying Back Its Own Shares

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 one that has been engaged in buybacks these past few weeks.

The company in question is Singapore Airlines Ltd (SGX: C6L), a blue chip stock in Singapore’s market by virtue of it being one of the 30 constituents of the Straits Times Index (SGX: ^STI).

Singapore Airlines probably needs no introduction for Singaporeans. But beyond flying passengers around in its full-service airline, the company also ferries cargo around the world by air and owns low cost carriers such as Scoot and Tigerair. In addition, Singapore Airlines is the majority owner of SIA Engineering Company Ltd (SGX: S59), a provider of maintenance, repair, and overhaul (MRO) services to the airline industry.

Singapore Airlines has been busy buying back its shares in the month of May – it has bought back shares on eight occasions thus far, spending a total of S$30.1 million on 2.84 million shares.

The airline had released its full-year earnings only a few weeks ago on 13 May 2016. In the fiscal year ended 31 March 2016 (FY2016), Singapore Airlines saw its revenue dip by 2.2%. But, its profit more than doubled from S$368 million to S$804 million. A big 19% reduction in fuel costs to S$4.53 billion had helped pad the bottom-line.

Looking ahead, Singapore Airlines warned that it is still “contending with a challenging operating environment in key markets, caused in part by weak economic activity and relatively repaid growth in capacity.” But, the airline also thinks that it is “well positioned to compete in this environment.”

A Foolish conclusion

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.

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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.