How Confident Are Insiders About Obsidian Energy Ltd (TSE:OBE)?

Obsidian Energy Ltd’s’ (TSE:OBE) is one of Canada’s small-cap stocks operating in the CA Oil and Gas industry. Obsidian Energy saw some insider buying over the past three months, with insiders investing in more than 18 million shares during this period. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic 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 Obsidian Energy

Who Are Ramping Up Their Shares?

TSX:OBE Insider_trading Jan 11th 18
TSX:OBE Insider_trading Jan 11th 18
Over the past three months, more shares have been bought than sold by Obsidian Energy’s’ insiders. In total, individual insiders own over 36 million shares in the business, which makes up around 7.12% of total shares outstanding. Insiders that have recently bought more shares are:
Name Management Board Total Annual Compensation
David Lorber
Maureen Jackson $87,782
Stephen Loukas
The entity that bought on the open market in the last three months was FrontFour Capital Group LLC Kernwood 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.

Is Future Growth Outlook As Bullish?

TSX:OBE Future Profit Jan 11th 18
TSX:OBE Future Profit Jan 11th 18

At first sight, Obsidian Energy’s future looks good. Delving deeper into the line items,Obsidian Energy is expected to experience a healthy double-digit top-line growth next year, which seems to drive higher expected earnings per share growth as well. This may mean the company is reaping meaningful benefits from past growth initiatives, placing it in a beneficial position for future profits. This appears to be bolstered by insiders’ net buying activities signalling their confidence. Or they may simply view the share price is currently too low compared to the share’s intrinsic value.

Did Stock Price Volatility Instigate Buying?

An alternative reason for recent trades could be insiders taking advantage of the share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Within the past three months, Obsidian Energy’s share price traded at a high of CA$1.81 and a low of CA$1.25. This indicates reasonably high share price volatility with a change of 44.8%. This movement could potentially be significant enough to warrant insiders to accrue their shares.

Next Steps:

Obsidian Energy’s net buying tells us the stock is in favour with some insiders, although the expected earnings growth challenges this conclusion, while a relatively volatile share price could be the motivation to trade. However, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. there are two fundamental aspects you should look at:

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.