Should You Follow This Trend For Photon Control Inc (TSE:PHO)?

Photon Control Inc. designs, manufactures, and distributes a range of optical sensors and systems to measure temperature and position. Photon Control is one of Canada’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in 62.00k shares during this period. It is widely considered that insider buying stock in their own companies is potentially a bullish signal. A research published in The MIT Press (1998) concluded 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.

Check out our latest analysis for Photon Control

Who Are The Insiders?

There were more Photon Control insiders that have bought shares than those that have sold. In total, individual insiders own over 5.3 million shares in the business, which makes up around 4.76% of total shares outstanding. Insiders that have recently bought more shares are:

Name	Management	Board	Total Annual Compensation
Scott Edmonds	✔	✔	CA$0506.67k

Does Buying Activity Reflect Future Growth?

On the surface, Photon Control’s future looks hopeful. Digging deeper into the line items, analysts anticipate a double-digit top-line growth over the next year, which appears to flow through to larger earnings growth expectations. This may mean the company is reaping meaningful benefits from past growth initiatives, placing it in a beneficial position for future profits. Insiders' conviction in this strong performance is illustrated by their ramp up in shareholdings. Or they may merely believe the stock is 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. 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, Photon Control’s share price traded at a high of CA$2.38 and a low of CA$1.66. This suggests a fairly large volatility with a share price movement of 43.37%. This movement could potentially be significant enough to warrant insiders to accrue their shares.

Next Steps:

Photon Control’s net buying tells us the stock is in favour with some insiders, reinforced by the substantial earnings growth expectations, on top of a reasonable share price movement around the same time. 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 essential factors you should further research:

1. Financial Health: Does Photon Control 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 Photon Control? 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.

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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.