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This Steel Products Distributor Has Been Buying Back Its Own Shares

Every now and then, I like to keep track of companies that have been buying back their own shares. It is 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, that has been engaged in buybacks these past few weeks.

The company in question is Hupsteel Limited  (SGX: BMH), a steel products distributor with a track record of over 60 years. The company supplies to a number of industries, such as oil and gas, chemical and petrochemical, energy, infrastructure, and more.

Hupsteel’s products include pipes, fittings, structural steel as well as general hardwares. The firm also derives a steady stream of income from its investment properties.

In the month of August, Hupsteel bought back its own shares on two occasions, namely, 30 August and 31 August.  The company had spent nearly S$270,000 on a total of 475,500 shares.

The company had released the results for its fiscal year ended 30 June 2016 (FY2016) just last week on 29 August.

It was not a good year for the company. There was a 33% decline in revenue and rental income to S$56.4 million, and the company’s loss of S$7.95 million in FY2015 had widened to S$19 million. As a result, Hupsteel’s book value per share had declined by 11% to S$1.3451.

The management of Hupsteel also sees headwinds ahead. In the earnings release, Hupsteel commented the following on its outlook:

“Demand for steel products is expected to remain soft in the next few quarters. With marine and oil & gas sectors continuing to report weak activity level and coupled with stiff competition among suppliers of steel products, revenue and margins are likely to face further downward pressure.”

Hupsteel’s shares closed yesterday trading session at a price of S$0.56.  At that price, the company’s shares have fallen by over a quarter in last 12 months and have a price-to-book ratio of just 0.42.

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.

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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.