Navitas Limited provides educational services for students and professionals in Australia, the United Kingdom, Europe, Asia, Canada, the United States, and internationally. Navitas’s insiders have invested more than 5.55 million shares in the large-cap stocks within the past three months. 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%. But these signals may not be sufficient to gain confidence on whether to invest. I’ve analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.See our latest analysis for Navitas
Who Are Ramping Up Their Shares?
Over the past three months, more shares have been bought than sold by Navitas’s’ insiders. In total, individual insiders own over 109.48 million shares in the business, which makes up around 30.57% of total shares outstanding. The entity that bought on the open market in the last three months was Colonial First State Asset Management (Australia) 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?
On the surface, analysts’ earnings growth projection of 78.39% over the next three years provides a buoyant outlook going forward 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. However, next year’s earnings are expected to exhibit significant double-digit growth which may mean the company’s cost-cutting initiative will be meaningful enough to more than offset negative revenue growth. Insiders may have confidence in these cost initiatives, or believe the market has overly penalized the company’s shares, leading to an opportune time to buy.
Did Stock Price Volatility Instigate Buying?
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. Navitas’s shares ranged between A$5.18 and A$4.24 over the past three months. This suggests some volatility with a share price change of of 22.17%. 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 rebalancing.
Navitas’s net buying tells us the stock is in favour with some insiders, coherent with the sizeable growth in expected earnings, although the share price has not moved significantly to warrant reassessment of mispricing. However, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve compiled two key factors you should further examine:
- Financial Health: Does Navitas 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 Navitas? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!