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 criteria 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)….
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 criteria 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 company, chosen at random from a list, that has been engaged in buybacks these past few weeks.
The company in question is Boustead Singapore Limited (SGX: F9D). Boustead Singapore provides 1) engineering services to the oil & gas sector; 2) geo-spatial technologies for commercial entities and government bodies; and 3) real estate solutions for industrial and commercial properties.
The last business is housed under the listed company, Boustead Projects Ltd (SGX: AVM). Boustead Projects was spun-off from Boustead Singapore in April 2015. You can read more about Boustead Projects here.
On 28 July 2016, Boustead Singapore bought back 922,100 shares of itself for a total sum of just over S$739,000.
Boustead Singapore’s latest results was for the first-quarter of its fiscal year ending 31 March 2017 and it was released just last week on 12 August 2016.
During the quarter, Boustead Singapore saw its revenue slip by 3% year-on-year to S$113.7 million mainly due to weakness at its Energy-Related Engineering segment (revenue there fell by 24% year-on-year to S$26.1 million) as a result of the drastic fall in oil prices over the past two years.
But, profit attributable to shareholders still managed to grow by 11% to S$6.99 million due to favourable currency swings for Boustead Singapore.
In any case, the company mentioned in its earnings release – as it always does – that “quarterly results would not accurately reflect the full-year’s performance” given that its “revenue is largely derived from project-oriented businesses.” Boustead Singapore suggests that “full-year to full-year comparisons are more appropriate for analytical purposes.”
Speaking on its outlook, Boustead Singapore warned that while “it will continue to be profitable in FY2017, the level of profit may not match that of FY2016 due to the current macro economic environment.” The company added:
“The Group continues to search for M&A and investment opportunities across its divisions in related business fields, as well as in potential new business fields.
Given the Group’s significantly improved net cash position of $179.3 million and untapped $500 million multi-currency medium-term note programme, the Group is in an excellent position to capitalise on any good acquisition and investment opportunities that may arise, especially in a situation where the global economy takes a significant downturn.”
Boustead Singapore’ shares closed at a price of S$0.78 yesterday. At that price, the company is valued at 14 times trailing earnings and sports a trailing dividend yield of 3.8%.
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.
For more investing insights and to keep up to date on the latest financial and stock market news, you can 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.