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.
1. Ezion (SGX: 5ME)
Ezion’s main business activities involve the development, ownership, and chartering of strategic offshore assets. It also provides offshore marine logistics and support services to the oil and gas industry.
The company’s fleet of offshore assets include multi-purpose self-propelled service rigs, special purpose vessels and more. These vessels are used to commission and decommission offshore platforms, amongst other uses.
Ezion’s chief executive and executive director, Chew Thiam Keng, had bought a total of 1.5 million shares of the company on two occasions thus far in the month of August (on the 11th and 22nd). He had spent around S$413,000 on the purchases, which bumped up his stake in Ezion from 13.26% to 13.34%.
Ezion’s share price closed at S$0.24 on Thursday evening. The company’s earnings in the last 12 months is negative and its share price has dropped by nearly 60% since the start of the year due to the difficult market conditions in the oil and gas industry.
In the first six months of 2016, Ezion’s revenue dipped slightly by only 8%, but its bottom-line fell hard by 50%. The company “expects strong headwinds to continue into the second half of the year.”
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.
Koh Wee Meng, the company’s chief executive and executive chairman, has been busy buying shares in the month of August. All told, he had spent around S$202,000 on 1.2 million shares. He currently has an 85.484% stake in the firm.
During the first-half of 2016, Fragrance saw big declines of over 70% for both its top- and bottom-line owing to lesser development projects given Singapore’s property cooling measures. The management team expects big fluctuations in its revenue for the rest of the year, but it is looking to grab new market opportunities following the sale of almost all its residential properties in Singapore.
Fragrance Group’s shares closed at S$0.166 each yesterday. At that price, the firm has a price-to-book ratio of 1.1.
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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.