Are Insiders Too Confident In Founders Advantage Capital Corp (CVE:FCF)?

By
Simply Wall St
Published
May 08, 2018
TSXV:DLCG
Source: Shutterstock

Founders Advantage Capital Corp. operates as an investment issuer. Founders Advantage Capital's insiders have invested 814,523 shares in the small-cap stocks within the past three months. Generally, insiders buying more shares in their own firm sends a bullish signal. A two-decade research published in The MIT Press (1998) showed 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.

View our latest analysis for Founders Advantage Capital

Which Insiders Are Buying?

TSXV:FCF Insider_trading May 8th 18
TSXV:FCF Insider_trading May 8th 18
There were more Founders Advantage Capital insiders that have bought shares than those that have sold. In total, individual insiders own over 10 million shares in the business, which makes up around 390.78% of total shares outstanding. Insiders that have recently ramped up their holdings are:
NameManagementBoardTotal Annual Compensation
Chris Kayat $4,351,286
Dennis Sykora $327,417
Gary Mauris $300,000
Melanie Litoski
Ronald Gratton
Stephen Reid
The entity that bought on the open market in the last three months was Harrington Global 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?

TSXV:FCF Future Profit May 8th 18
TSXV:FCF Future Profit May 8th 18

On the surface, Founders Advantage Capital’s future looks bright. Delving deeper into the line items,analysts anticipate a sizeable revenue growth over the next year, which Insiders expecting earnings improvement may increase their holdings in the company now when the market has not fully accounted for the growth potential.

Can Share Price Volatility Explain The Buy?

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. Founders Advantage Capital’s shares ranged between CA$2.2 and CA$2.05 over the past three months. This suggests a trivial share price movement, with a change of 7.32%. This could indicate insider transactions are not driven by share price changes but perhaps due to their belief of the company's growth prospects or just personal portfolio re-weighting.

Next Steps:

Founders Advantage Capital’s insider meaningful buying activity tells us the shares are currently in favour, which is coherent with the positive 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. I've compiled two fundamental factors you should look at:

  1. Financial Health: Does Founders Advantage Capital 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.
  2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Founders Advantage Capital? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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