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 I’ve chosen at random from a list of companies that have recently seen insiders buy shares.
1. Amara Holdings Ltd (SGX: A34)
Amara Holdings is a real estate company with operations mainly in Singapore. It develops properties and also owns hospitality and commercial assets.
Some of the company’s properties include the upscale Amara Singapore hotel in Tanjong Pagar; the retail mall 100AM, which is seated beside the hotel; and the Amara Sanctuary Resort Sentosa, a boutique resort in Sentosa Island, one of Singapore’s main tourist destinations.
Amara’s chief executive Teo Hock Chuan had bought 100,000 shares of the company on 16 August 2016 for a sum of S$42,000, bumping up his stake from 43.34% to 43.36%. The purchase translates into an average share price of S$0.42.
Amara released its second-quarter earnings on 11 August and saw its quarterly revenue slip by 5% to S$18.2 million. But, the profit attributable to shareholders soared by 104% to S$3.5 million due to the appearance of share of results from a jointly-controlled development project.
In the earnings release, Amara commented that its industry “has been experiencing lower corporate business due to the global economic uncertainty. With the increased supply in inventory, owners of new hotels are also engaging in promotional pricing for corporate and group tour customers to build market share which will put pressure on room rates.”
Amara’s shares closed at S$0.40 each yesterday. At that price, the company is valued at 0.63 times book value.
2. ISEC Healthcare Ltd (SGX: 40T)
ISEC Healthcare provides specialist medical eye care services in Malaysia and Singapore. The company currently has a team of 19 doctors who specialise in medical fields such as cataract and refractive surgery (including LASIK).
On 12 August, ISEC Healthcare’s chief executive Wong Jun Shyan bought 100,000 shares of the company for S$0.335 each. His total stake in the company increased from 8.71% to 8.73% as a result.
In its latest earnings release (for the second-quarter of 2016), ISEC Healthcare saw an 11% jump in total revenue to S$8.2 million, mainly due to S$2.1 million in new contributions from Southern Specialist Eye Centre which was acquired in December 2015. The higher revenue helped the bottom-line grow big – ISEC Healthcare’s profit in that period was S$1.7 million, up 48% from the previous year.
The earnings release also contained comments from the company on its future. It said:
“Our business remains positive and mainly driven by the ageing population, increased awareness of eye disorders, increased uptake of private insurance and growth of medical tourism.”
ISEC Healthcare’s share price ended yesterday’s trading session at S$0.32 each. At that price, the healthcare company has a price-to-earnings ratio of 36.
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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.