How Confident Are Insiders About Thorn Group Limited (ASX:TGA)?

Thorn Group Limited’s’ (ASX:TGA) is one of Australia’s large-cap stocks operating in the Retailing industry. TGA saw some insider buying over the past three months, with insiders investing in more than 2 million shares during this period. It is widely considered that insider buying stock in their own companies is potentially a bullish signal. The MIT Press (1998) published an article showing that stocks following insider buying outperformed the market by 4.5%. However, it may not be sufficient to base your investment decision merely on these signals. I will be analysing whether these buying activities are supported by favourable future outlook and recent share price volatility.

View our latest analysis for Thorn Group

Who Are Ramping Up Their Shares?

ASX:TGA Insider_trading Aug 16th 17
ASX:TGA Insider_trading Aug 16th 17
There were more Thorn Group insiders that have bought shares than those that have sold. In total, individual insiders own over 3 million shares in the business, which makes up around 2.09% of total shares outstanding. Insiders that have recently ramped up their holdings are:
Name Management Board Total Annual Compensation
Belinda Gibson $110,036
David Foster $68,768
The entity that bought on the open market in the last three months was Investors Mutual Limited. Although this is an institutional investor, rather than a company executive or board member, the insights gained from direct access to management as a large investor would make it more well-informed than the average retail investor. In this specific instance, I would classify this investor as a company insider.

Is This Consistent With Future Growth?

ASX:TGA Future Profit Aug 16th 17
ASX:TGA Future Profit Aug 16th 17

At first glance, analysts’ earnings expectations of 24.30% over the next three years illustrates a decent outlook for the company which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,analysts anticipate negative growth in its top-line over the next year, which indicates the company may be facing some headwinds. Although, expected strong double-digit earnings growth of 13.60% could indicate the company’s cost controls will show meaningful results, offsetting the fall in revenue growth. Insider buying activities show that they have conviction in the company’s capacity to keep growing. They may see it in the midst of a turnaround or simply deem the stock undervalued, with negative sentiment over-discounting the share price.

Did Stock Price Volatility Instigate Buying?

Alternatively, the timing of these insider transactions may have been driven by share price volatility. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. In the past three months, Thorn Group’s share price reached a high of $1.42 and a low of $1.16. This indicates reasonable volatility with a change of 22.94%. Insiders’ purchases may not be driven by this movement but perhaps their view of the company’s growth in the future or simply their individual portfolio needs.

Conclusion

Tracking insider trading can be a valuable barometer of broad shifts in the sector and company sentiment. And it is undoubtedly encouraging to buy or sell a stock knowing insiders have done the same. Their confidence can be gauged by when and how much they trade. TGA’s net buying tells us the stock is in favour with some insiders, which is coherent with the positive growth in expected earnings, although the share price has not moved significantly to warrant reassessment of mispricing.

Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. For a better understanding of whether Thorn Group is a good investment, I recommend you look at our latest free analysis report on what really matters for TGA – the fundamentals.

PS. If you are not interested in Thorn Group anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.