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. Neo Group Ltd (SGX: 5UJ)
Listed on 11 July 2012, Neo Group is the largest events caterer in Singapore and currently has four catering brands, namely Neo Garden Catering, Orange Clove Catering, Deli Hub Catering, and Best Catering. The company thinks that having different catering brands allows it to offer buffets with a wide variety of styles and prices to suit a diverse range of occasions.
Beyond catering, Neo Group also has a food & beverage retail outlet arm. The biggest concept here would be umisushi, which offers Japanese food in a quick service environment.
Neo Group has been busy with acquisitions over the past year, acquiring Thong Siek Holdings and CT Vegetables & Fruits. The former is an established fishball manufacturer in Singapore and owner of the DoDo brand of fishballs. The latter is a trader of over 300 varieties of fruits and vegetables.
Earlier this week, Neo Group had also proposed an acquisition of U-Market Place Enterprise, a manufacturer of the Joo Chiat Kim Choo rice dumplings. It also has six outlets selling barbecue products and related meat items.
Two directors of Neo Group had bought shares of the company recently. On 26 May 2016, Kevin Ng and Yeo Kok Tong, who are both independent directors of Neo Group, had purchased 14,300 and 27,000 shares, respectively. Ng had spent slightly over S$9,000 while Yeo had spent around S$17,000.
Neo Group had announced its latest FY2016 (fiscal year ended 31 March 2016) results on 26 May 2016. The company’s total revenue had jumped by 62% to S$125.4 million primarily due to contributions from both the acquisitions mentioned previously. But the company’s bottom-line had suffered, falling by 43% to S$4.2 million. It should be noted though that FY2016’s results were compared with the 14 months ended 31 March 2015.
Neo Group’s shares last changed hands at S$0.64 yesterday. At that price, the company has a trailing price-to-earnings (PE) ratio of 15.
2. Tai Sin Electric Ltd (SGX: 500)
Tai Sin Electric, as its name suggests, deals with electrical products. The company manufactures and distributes a wide variety of electrical cables and wires and also provides cabling and wiring solutions for industrial, commercial, residential, and even offshore & marine projects.
The company currently has subsidiaries and offices mainly located in the South-east Asia region such as Singapore, Malaysia, Vietnam, and Indonesia.
On 30 May 2016, Lim Chye Huat, an executive director of Tai Sin Electric, had bought 200,000 shares of the company at a price of S$0.33 each. It also bumped up Lim’s total stake in the firm from 13.441% to 13.487%.
Tai Sin Electric’s latest results were for the third-quarter of its fiscal year ending 30 June 2016 (fiscal 2016). For the nine months ended 31 March 2016, the company’s revenue had climbed by 6.7% year-on-year to S$232.2 million and its profit had increased by 7.3% to S$14.05 million.
The company has oil & gas businesses and it acknowledged the poor conditions in the sector in the earnings release. The company also commented that its “profitability will depend very much on better market conditions in the region.”
Tai Sin Electric’s shares closed at S$0.33 yesterday, giving the company a PE ratio of just 8.
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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.