Are Insiders Too Confident In Collagen Solutions plc (LON:COS)?

Collagen Solutions plc develops, manufactures, and supplies medical grade collagen components and biomaterials for use in regenerative medicines, medical devices, and in-vitro diagnostics in Europe, the Middle East, Africa, North America, and Asia. Collagen Solutions is one of United Kingdom’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 3.14 million 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 Collagen Solutions

Who Are Ramping Up Their Shares?

AIM:COS Insider_trading July 9th 18
AIM:COS Insider_trading July 9th 18
More shares have been bought than sold by Collagen Solutions insiders in the past three months. In total, individual insiders own over 55.78 million shares in the business, which makes up around 17.19% of total shares outstanding. Insiders that have recently bought more shares are:
Name Management Board Total Annual Compensation
David Evans UK£00

Does Buying Activity Reflect Future Growth?

AIM:COS Future Profit July 9th 18
AIM:COS Future Profit July 9th 18
At first sight, Collagen Solutions’s future looks positive. Digging deeper into the line items, analysts anticipate a double-digit top-line growth over the next year, which appears to flow through to an earnings growth of 17.38%. This indicates some degree of economies of scale which may have a compounding impact in the future. 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?

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. In the past three months, Collagen Solutions’s share price reached a high of £0.039 and a low of £0.027. This suggests reasonably high share price volatility with a change of 44.44%. Insiders may deem this relatively meaningful movement as an opportunity to increase their shareholdings.

Next Steps:

Collagen Solutions’s insider meaningful buying activity tells us the shares are currently in favour, which is fairly consistent with earnings growth expectations, and a fairly high volatility in share price over the same time period. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve put together two relevant aspects you should further research:

  1. Financial Health: Does Collagen Solutions 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 Collagen Solutions? 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.