Bullish Faes Farma SA (BME:FAE) Insiders Ramp Up Investment In Stock

Faes Farma, S.A., a pharmaceutical company, develops, produces and commercializes pharmaceutical products and raw materials primarily in Spain and Portugal. Faes Farma is one of Spain’s large-cap stocks that saw some insider buying over the past three months, with insiders investing in 81.21k shares during this period. 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. I will be analysing whether these buying activities are supported by favourable future outlook and recent share price volatility. See our latest analysis for Faes Farma

Which Insiders Are Buying?

BME:FAE Insider_trading July 10th 18
BME:FAE Insider_trading July 10th 18
There were more Faes Farma insiders that have bought shares than those that have sold. In total, individual insiders own over 6.76 million shares in the business, which makes up around 2.53% of total shares outstanding. Latest buying activities involved the following insiders:
Name Management Board Total Annual Compensation
Carlos de Alcocer Torra €057.00k
Carmen Basagoiti Pastor €064.00k
Mariano Ucar Angulo €0919.00k

Does Buying Activity Reflect Future Growth?

BME:FAE Future Profit July 10th 18
BME:FAE Future Profit July 10th 18
Analysts’ expectations for earnings over the next 3 years of 46.95% provides an upbeat outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates, Faes Farma is expected to experience a rather subdued top-line growth over the next year, but a double-digit earnings growth at 16.06%. This may mean the company’s cost-cutting initiative will be significant enough to boost earnings. Insiders ramping up shares could gesture confidence in sustainable growth rates. Or they may merely see a buying opportunity due to undervaluation at the current share price.

Did Insiders Buy On Share Price Volatility?

An alternative reason for recent trades could be insiders taking advantage of the 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, Faes Farma’s share price traded at a high of €3.8 and a low of €2.97. This suggests reasonable volatility with a change of 27.78%. This may not be large enough to warrant any significant purchases, therefore the underlying driver may be the insiders’ belief of company growth prospects or simply their personal portfolio rebalancing.

Next Steps:

Faes Farma’s net buying tells us the stock is in favour with some insiders, which is coherent with the positive growth in expected earnings, although the share price has not moved significantly to warrant reassessment of mispricing. However, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve put together two fundamental aspects you should look at:

  1. Financial Health: Does Faes Farma 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 Faes Farma? 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.