Every now and then, I like to keep track of companies that have been buying back their own shares. That?s because share buybacks could 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. As far as Lynch is concerned, it?s a good sign if a company or its insiders are buying shares.
Of course, management may be buying back shares for other reasons other than its stock being undervalued (some other reasons would be to offset dilution). And even if management feels…
Every now and then, I like to keep track of companies that have been buying back their own shares. That’s because share buybacks could 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. As far as Lynch is concerned, it’s a good sign if a company or its insiders are buying shares.
Of course, management may be buying 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. 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 that has been engaged in buybacks these past few weeks.
The company in question is Yanlord Land Group Limited (SGX: Z25). The company has a focus on residential, commercial, and fully-integrated real estate projects. Yanlord Land has a presence in five major economic regions in China, namely, the Yangtze River Delta, the Pearl River Delta, Western China, Bohai Rim, and Hainan.
Beyond the property development business, Yanlord Land also has property investments and provides real estate management services. These help to generate recurrent income.
Since the start of September 2016, Yanlord has been actively purchasing its own shares. All told, the company has bought back a total of 5.89 million shares, equivalent to 0.302% of its issued capital. During its last transaction on 3 October 2016, 100,000 shares were acquired at an average price of S$1.385.
In the firm’s latest first-half year earnings, it saw revenues leapt 206.2% to RM10.26 billion on a year-to-year basis. Net profits rocketed 213.1% to RM584.1 million, underpinned by strong demand for its property developments. Mr. Zhong Sheng Jian, Yanlord’s Chairman and CEO is sanguine about the group’s financial performance. He said:
“The continued encouragement for home ownership by the PRC Central government is a key catalyst for sustainable development of the PRC real estate sector. Capitalising on this favourable market environment, we continue to make significant strides in pre-sales accumulation in 1H 2016.
“Building upon our healthy pipeline of project launches in prime locations within the first and second tier cities of the PRC, we hope to further enhance our pre-sales accumulation efforts. Since the beginning of 2016, we have leveraged on our healthy financial position and strong sales collection to embark on various initiatives that will augment our landbank holdings.
“Ideally situated in prime locations within first and second tier cities, these sites will tap on Yanlord’s track record in the development of high-end international communities and is expected to contribute positively to our future growth and development.”
Yanlord Land’s shares last closed at S$1.39. At that price, the firm is valued at 0.65 times book value.
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 whether a company’s shares are actually.
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.