Stock Analysis

What Do ARC Resources Ltd (TSE:ARX) Insiders Know That You Don't?

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ARC Resources Ltd., together with its subsidiaries, acquires, explores, develops, and produces crude oil, natural gas, and natural gas liquids. ARC Resources's insiders have invested 19,680 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. 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’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.

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Who Are Ramping Up Their Shares?

TSX:ARX Insider_trading Feb 9th 18
TSX:ARX Insider_trading Feb 9th 18
There were more ARC Resources insiders that have bought shares than those that have sold. In total, individual insiders own over 2 million shares in the business, which makes up around 0.58% of total shares outstanding. Insiders that have recently ramped up their holdings are:
NameManagementBoardTotal Annual Compensation
Bevin Wirzba
John Dielwart $1,883,391
Larissa Conrad $235,057
Myron Stadnyk $3,971,428

Does Buying Activity Reflect Future Growth?

TSX:ARX Future Profit Feb 9th 18
TSX:ARX Future Profit Feb 9th 18

Analysts’ expectations for revenue growth over the next 3 years of 40.34% provides 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,ARC Resources is expected to experience 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, indicating cost-cutting may not be able to pull it through into a positive growth region yet. 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.

Can Share Price Volatility Explain The Buy?

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. In the past three months, ARC Resources’s share price reached a high of CA$16.87 and a low of CA$12.43. This indicates reasonably high share price volatility with a change of 35.72%. This movement could potentially be significant enough to warrant insiders to accrue their shares.

Next Steps:

ARC Resources’s insider meaningful buying activity tells us the shares are currently in favour, though negative growth in expected earnings contests this assumption, while a relatively volatile share price could be the motivation to trade. 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 research:

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.

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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.