United Engineers Limited engages in the property, engineering and distribution, and manufacturing businesses in Singapore and internationally. United Engineers’s insiders have invested more than 6.57 million shares in the large-cap stocks within the past three months. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic signal. A two-decade research published in The MIT Press (1998) showed 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. Check out our latest analysis for United Engineers
Who Are The Insiders?
Over the past three months, more shares have been bought than sold by United Engineers’s’ insiders. In total, individual insiders own over 22.13 million shares in the business, which makes up around 3.59% of total shares outstanding. The entity that bought on the open market in the last three months was Oxley Holdings Limited Yanlord Land Group 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?At first glance, analysts’ earnings expectations of -57.40% over the next three years illustrates poor outlook for the company, however, this is contrary to the signal company insiders are sending with their net buying activity. Digging deeper into the line items, analysts anticipate negative growth in its top-line over the next year, which indicates the company may be facing some headwinds. This is expected to impact its bottom line next year given the large negative growth rate expected, implying cost management may not be effective enough to bring the company into positive earnings growth. Although, insiders seem to know something the market does not and have been ramping up their holdings in times of uncertainty. This indicates they may see a turnaround or deem the stock to be over-penalized by negative market sentiment.
Did Stock Price Volatility Instigate Buying?Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. Within the past three months, United Engineers’s share price traded at a high of SGD2.83 and a low of SGD2.6. This indicates a relatively insignificant share price movement, with a small change of 8.85%. This may mean insiders’ motivation to trade may not be driven by the share price but rather other factors such as their belief in company growth or their personal portfolio rebalancing.
United Engineers’s net buying tells us the stock is in favour with some insiders, although the expected earnings growth challenges this conclusion, and 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. there are two key factors you should further research:
- Financial Health: Does United Engineers have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of United Engineers? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!