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. Uni-Asia Holdings Ltd (SGX: AYF)
Uni-Asia Holdings brands itself as an “alternative investment company.” The firm provides alternative investment opportunities for investors and has capabilities in asset management, hotel operations, structured finance, fund management, and more. Uni-Asia’s investment focus is rather specific – it deals with cargo vessels and properties in Japan, China, and Hong Kong.
On 10 June 2016, Masaki Fukumori, Uni-Asia Holdings’ executive director and chief operating officer, had bought 5,000 shares of the company for a sum of S$5,830. The purchase caused his stake in Uni-Asia Holdings to increase slightly from 2.07% to 2.08%.
In the first-quarter of 2016, Uni-Asia Holdings’ total income (its revenue) came in at US$18.9 million, up 16% from a year ago. But, its net profit was a negative US$0.61 million, down from the positive US$0.29 million seen in the corresponding quarter last year. Fair valuation losses in the company’s shipping investments and hedging derivatives had contributed to the loss in the reporting quarter. The company also reported a net asset value of US$2.99 at end-March 2016, up slightly from the US$2.98 seen at end-2015.
Going forward, management thinks that the company’s shipping business will “remain weak” because of low charter rates in the depressed shipping market. But, Uni-Asia Holdings “is confident that it can weather the uncertainties ahead given [its] diversified business model encompassing property as well as hotel operations, coupled with an experienced management team.”
Uni-Asia Holdings’ shares closed at S$1.12 each yesterday. At that price, the company’s valued at just 0.3 times its book value.
2. Fragrance Group Limited (SGX: F31)
Fragrance Group is engaged in real estate development and the ownership and management of hotels. The company has had a track record of successfully launching and completing “more than 70 projects” across Singapore.
In June, Fragrance Group’s executive chairman and chief executive Koh Wee Meng had bought shares on two occasions (2 and 16 June). In total, he had acquired 65,000 shares for a sum of S$11,430. Koh currently controls 85.45% of the company.
The company’s latest earnings were for its fiscal first-quarter, the three months ended 31 March 2016. For the period, Fragrance Group’s revenue plunged by 74.1% to S$22.7 million. The bottom-line also fell in line, with net profit falling by 68% to S$5.29 million. The real estate firm’s results had suffered due to a lower number of ongoing development projects. That said, Fragrance Group’s book value managed to climb by 5.9% from S$0.146 a year ago to S$0.155.
On Fragrance Group’s future outlook, management commented in the earnings release that the firm “is well positioned to seize new market opportunities, having sold almost all of its residential properties in Singapore.” But, management also said that the company’s revenue in 2016 “will be subjected to potentially significant amount of fluctuations” on the back of a number of factors.
The firm’s shares had closed at a price of S$0.17 yesterday. At that price, the company has a price-to-book ratio of 1.1.
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.