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…
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 I’ve chosen at random that have recently seen insiders buy shares, or in other words, putting their money where their mouth is.
1. Procurri Corporation Ltd (SGX: BVQ)
Procurri is a leading global independent provider of data centre equipment and lifecycle services.
The company has two main businesses: IT distribution and lifecycle services. Under the former, Procurri provides supply chain management services and a wide range of data centre hardware and equipment. With the latter, Procurri has a hardware-as-a-service business and provides maintenance and recycling services for technological products.
Procurri’s shares started trading on the Mainboard for the first time less than a month ago on 20 July 2016. On that same day, the company’s executive director and chief executive, Sean Murphy, had bought 500,000 shares for a total sum of S$234,500 on the open market. The purchase saw Murphy’s total stake in Procurri increase slightly from 16.1% to 16.28%.
Procurri’s shares closed at S$0.44 each on Monday evening. At that price, the company has a price-to-earnings ratio of 10. The company’s revenue and profit have grown at compound annual growth rates of 108% and 112%, respectively, from 2013 to 2015.
2. Tung Lok Restaurants (2000) Ltd (SGX: 540)
Tung Lok is a food & beverage retail company that currently manages 45 outlets in Singapore and other parts of Asia. The company’s restaurant brands include Lao Beijing, TungLok Seafood, Dancing Crab, and more.
On 26 July 2016, Tjioe Ka Men, Tung Lok’s executive chairman, had bought 20,200 shares of the company for nearly S$2,000. As a result, Tjioe’s total stake in Tung Lok had inched up from 39.22% to 39.23%.
In Tung Lok’s latest earnings release (for the year ended 31 March 2016), the company had registered a slight 1.3% increase in revenue to S$86.1 million and also managed to grow its profit attributable to shareholders by 6.4% to S$611,000.
But, the company also warned that business conditions “are expected to remain challenging in the next 12 months due to economic outlook uncertainty, stiff competition as well as rising business and manpower costs.”
At Tung Lok’s closing share price of S$0.096 on Monday, the company is valued at 43 times trailing earnings.
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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.