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.
1. Bonvests Holdings Ltd (SGX:B28)
Bonvests is a company with three core businesses. It develops and invests in properties, owns and manages hotels, and provides waste management and contract cleaning services.
The company’s investment properties include Liat Towers and Yishun Ten. As for the hospitality side of things, Bonvests counts the Sheraton Towers Singapore Hotel under its wings, along with other hospitality assets.
Meanwhile, Bonvests’ waste management business comes from its majority stake in the Catalist-listed Colex Holdings Limited (SGX: 567), one of Singapore’s leading waste management and contract cleaning companies.
Bonvests’ chairman and managing director, Henry Ngo, had bought 224,000 shares of the company on 24 May 2016 at a price of S$1.19 each. With that, his total stake in Bonvests had increased slightly from 82.74% to 82.79%.
In the company’s latest quarterly earnings, released in early May, Bonvests reported a 15.9% increase in revenue to S$59 million. But, the bottom-line was essentially flat as the company’s profit dipped slightly by 0.4% from S$7.86 million a year ago to S$7.83 million.
Looking ahead, Bonvests commented that the “property rental markets in Singapore and Tunis are expected to remain stable in the near term.” It also added that its February 2016 acquisition of commercial properties in Australia “is expected to contribute to rental income.”
But, Bonvests also warned that the market for its hotels business would be challenging while its Industrial division (the waste management and contract cleaning business) would experience “competitive market conditions.”
At Bonvests’ closing share price of S$1.23 yesterday, the company’s valued at just 0.57 times its latest book value.
2. Challenger Technologies Limited (SGX: 573)
Challenger Technologies, a retailer of IT products, is likely to be a familiar company with many Singaporeans given that it has 48 retail outlets scattered across Singapore. These outlets include its namesake stores, Valore concept stores, and Musica stores.
In addition to running its brick-and-mortar outlets, Challenger Technologies is looking to transform itself into an e-commerce player through its online retail platform hachi.tech. The company aims to have up to 50% of its revenue coming from the site in five years’ time.
On three occasions in May (24, 25, and 26 May), Loo Leong Thye’s spouse, Ong Sock Hwee, had bought a total of 304,400 shares of Challenger Technologies for nearly S$137,000. Loo is the chief executive of Challenger Technologies. As a result of Ong’s purchases, Loo’s total interest in Challenger Technologies (consisting of his own personal holdings as well as shares held in his wife’s name) had stepped up slightly from 54.01% to 54.1%.
Challenger Technologies started 2016 on the front foot. The company reported a 7.9% increase in revenue to S$90.4 million in the first-quarter of the year. Its profit attributable to shareholders had also gained 2% to S$3.76 million. In addition, the cash flow picture improved markedly as an operating cash flow of a negative S$10.3 million in the first-quarter of 2015 had become a positive S$778,000.
The firm’s shares ended yesterday’s trading session with a price of S$0.45 , giving it a price-to-earnings ratio of just 8.4. .
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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.