Xenith IP Group Limited provides intellectual property (IP) services and advice relating to the identification, registration, management, commercialization, and enforcement of IP rights in Australia, New Zealand, and internationally. Xenith IP Group is one of Australia’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 1.91 million shares during this period. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic signal. A research published in The MIT Press (1998) concluded that stocks following insider buying outperformed the market by 4.5%. However, these signals may not be enough to gain conviction on whether to invest. 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 Xenith IP Group
Who Are Ramping Up Their Shares?
There were more Xenith IP Group insiders that have bought shares than those that have sold. In total, individual insiders own over 11.42 million shares in the business, which makes up around 12.87% of total shares outstanding. The entity that bought on the open market in the last three months was Perpetual 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.
Does Buying Activity Reflect Future Growth?At first glance, analysts’ earnings expectations of 223.48% over the next three years illustrates a fantastic outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items, Xenith IP Group is believed to experience a restrained level of top-line growth over the next year, although a significantly greater rate of earnings growth. This could indicate large cost-cutting initiatives by the company to boost its earnings. Insider confidence in the company could be signalled by their net buying activity as they expect sustained growth moving forward. Or they may believe share price is below intrinsic value, offering an opportunity to buy.
Did Insiders Buy On Share Price Volatility?Alternatively, the timing of these insider transactions may have been driven by share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Xenith IP Group’s shares ranged between A$1.28 and A$1.12 over the past three months. This indicates a relatively insignificant share price movement, with a small change of 14.8%. 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.
Xenith IP Group’s insider meaningful buying activity tells us the shares are currently in favour, coherent with the sizeable growth in expected earnings, even if the low share price volatility did not warrant exploiting any mispricing. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. there are two essential factors you should further examine:
- Financial Health: Does Xenith IP Group 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 Xenith IP Group? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!