Are Insiders Too Confident In Enbridge Income Fund Holdings Inc (TSE:ENF)?

Enbridge Income Fund Holdings Inc., through its investment in Enbridge Income Fund, holds energy infrastructure assets in Canada. Enbridge Income Fund Holdings is one of Canada’s large-cap stocks that saw some insider buying over the past three months, with insiders investing in 237,500 shares during this period. 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%. But these signals may not be sufficient to gain confidence on whether to invest. I’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.

View our latest analysis for Enbridge Income Fund Holdings

Which Insiders Are Buying?

TSX:ENF Insider_trading May 1st 18
TSX:ENF Insider_trading May 1st 18
Over the past three months, more shares have been bought than sold by Enbridge Income Fund Holdings’s’ insiders. In total, individual insiders own less than one million shares in the business, or around 0.39% of total shares outstanding. Latest buying activities involved the following insiders:
Name Management Board Total Annual Compensation
John Bird
Laura Cillis
The entity that bought on the open market in the last three months was Ptarmigan Charitable Foundation Endowment Arm. 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?

TSX:ENF Future Profit May 1st 18
TSX:ENF Future Profit May 1st 18

On the surface, analysts’ earnings growth projection of 29.51% over the next three years provides a positive outlook for the company which is consistent with the signal company insiders are sending with their net buying activity. Digging deeper into the line items,Enbridge Income Fund Holdings is believed to experience an impressive double-digit top-line growth next year, which is expected to drive significant expected earnings growth as well. This could indicate some degree of economies of scale which may have a compounding impact in the future. Insiders’ conviction in this strong performance is signalled by their net buying activity. Or perhaps they merely see the stock undervalued by the market relative to the growth potential it will deliver.

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. Within the past three months, Enbridge Income Fund Holdings’s share price traded at a high of CA$28.88 and a low of CA$26.48. This suggests a relatively insignificant share price movement, with a small change of 9.06%. Potentially, insider transactions are not share price related but may be due to their belief on what will happen to the company in the future or simply just personal portfolio rebalancing.

Next Steps:

Enbridge Income Fund Holdings’s insider meaningful buying activity tells us the shares are currently in favour, reinforced by the substantial earnings growth expectations, though share price volatility was perhaps inconsequential to cash in on 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 important aspects you should further research:

  1. Financial Health: Does Enbridge Income Fund Holdings 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 Enbridge Income Fund Holdings? 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.