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…
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. First Sponsor Group Ltd (SGX: ADN)
First Sponsor is a developer of residential and commercial properties, an owner of hotels, and commercial properties, and a provider of property financing services. Its key geographical markets are China and the Netherlands.
In terms of its property development business in China, First Sponsor’s focus is on the country’s second-tier cities such as Chengdu and Dongguan.
On 22 August, 5 September, and 6 September, First Sponsor’s non-executive chairman Ho Han Leong had bought a total of 608,600 shares of the firm for slightly over S$774,000. The purchases bumped up his total interest in the firm from 44.95% to 45.05%.
In First Sponsor’s latest reporting quarter (quarter ended 30 June 2016), total revenue surged by 40.8% to S$42.21 million while net profit increased 12.9% to S$8.6 million. There were two main drivers for the company’s growth: (1) Revenue recognition from the handover of units in its Millenium Waterfront project in Chengdu; and (2) recurring income from its Dutch property portfolio.
First Sponsor’s management team appear optimistic about the company’s future. In the earnings release, the company commented that “despite the current global uncertainties triggered by the recent Brexit event, [its] outlook for 2016, underpinned by the three operating business segments, is fairly good.” The company is “on the lookout for pockets of opportunities to expand its footprint in the Netherlands, PRC and other regions of growth.”
Shares of First Sponsor closed at S$1.31 yesterday. At that price, the company trades at 0.8 times book value.
2. Roxy-Pacific Holdings Ltd (SGX: E8Z)
Just like First Sponsor, Roxy-Pacific is also in the real estate business. The company, which has a track record of nearly 30 years, is a developer of both residential and commercial properties. It also owns the Grand Mercure Roxy Hotel along with other properties, such as 52 retail shops at The Roxy Square Shopping Centre in Singapore and 59 Gouldburn Street, a commercial building in Australia.
Roxy-Pacific’s executive director and chief financial officer Koh Seng Geok had acquired a total of 190,000 shares of the company over four occasions in the month of September. The purchases had increased his stake in Roxy-Pacific slightly from 0.51% to 0.53%.
The company’s latest reporting quarter is the second-quarter of 2016. There was growth seen – total revenue had climbed by 5% year-on-year to S$98.4 million while profit attributable to shareholders soared by 53% to S$19.9 million.
Roxy-Pacific had benefitted from a few sources during the quarter. There was higher revenue in its hotel and property development businesses, higher operating income as a result of fair value gains, and a better performance from its associates.
In the earnings release, Roxy-Pacific commented that private residential property prices in Singapore had declined by 0.4% in the second-quarter of 2016. It’s a different picture in Australia – the weighted average residential properties price index of eight capital cities in the country rose by 6.8% year-on-year. The company added that it is “cautiously optimistic of Singapore’s tourism outlook.”
Roxy-Pacific’s shares closed at S$0.445 each yesterday. The company is trading at 1.13 times book value at that price.
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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.