Buying back a company’s own shares instead of paying dividends could be a signal that management thinks its shares are undervalued. With that, here are three companies that have made significant share buybacks in the past few months.
AEM Holdings Ltd (SGX: AWX)
The developer of test handler systems for the manufacturing of semiconductors has aggressively bought back its shares in May and June this year. The last buyback was on 25 June for S$101,000 worth of shares at S$1.01 each.
Our FREE SGX stock pick!
Chief executive officer, Loke Wai San, owns around 5.7 million shares or 2.1% of the company. While he is not considered a substantial shareholder (5% or more), Loke is the managing director of Novo Tellus, and a fund related to the private equity firm has a substantial stake in AEM. As such, investors should take heart that Loke does have shareholders’ interest at heart.
By using the company’s cash to make share buybacks instead of paying out dividends, Loke and the rest of the management team may be signalling that they believe the company is currently undervalued.
Oversea-Chinese Banking Corp. Limited (SGX: O39)
The local bank has been performing share buybacks for some time now. The last share buyback announcement was on Monday 8 July where the bank bought back S$2.25 million worth of shares at S$11.27 each.
As of the end of 2018, group chief executive officer, Samuel Tsien owned around 1.38 million shares in the company, which translates to a S$15 million stake in the bank.
OCBC is also the cheapest bank among the big three banks in Singapore. At its current share price, it has a price-to-earnings ratio of 10.4 and a price-to-book ratio of 1.1.
CDW Holdings Limited (SGX: BXE)
The precision component specialist announced 11 instances of share buybacks in the last two months alone.
The most recent share buyback was for S$28,747 worth of shares at S$0.191 each. At its current price, CDW Holdings has a price-to-book ratio of 0.57 and a price-to-earnings multiple of 46.8.
In 2018, CDW Holdings suffered a 13.4% fall in revenue and more than 50% decline in profit after tax. However, the aggressive share buyback could be a sign that management thinks its current shares are underpriced at the moment.
Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.