Collagen Solutions plc’s (LON:COS) Insiders Ramped Up Holdings – Should You?

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’s insiders have invested more than 4 million shares in the small-cap stocks within the past three months. 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. I’ve analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.

Check out our latest analysis for Collagen Solutions

Who Are Ramping Up Their Shares?

AIM:COS Insider_trading May 18th 18
AIM:COS Insider_trading May 18th 18
More shares have been bought than sold by Collagen Solutions insiders in the past three months. In total, individual insiders own over 56 million shares in the business, which makes up around 17.19% of total shares outstanding. The following insiders have recently increased their company holdings:
Name Management Board Total Annual Compensation
David Evans £0
Hilary Spence £9,750
Malcolm Gillies

Is This Consistent With Future Growth?

AIM:COS Future Profit May 18th 18
AIM:COS Future Profit May 18th 18

On the surface, Collagen Solutions’s future looks hopeful. Delving deeper into the line items,Collagen Solutions is expected to experience a healthy double-digit top-line growth next year, which appears to flow through to an earnings growth of 17.38%. Improved cost management and sustained high revenue growth could lead to higher earnings growth in the future. If insiders recognised this, a signal of confidence may be in their net buying activity. Another reason for the timing of recent share acquisitions could be if they believe the stock is below its intrinsic value, which could be another motivation to buy now.

Did Stock Price Volatility Instigate Buying?

Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. Collagen Solutions’s shares ranged between £0.05 and £0.03 over the past three months. This indicates a substantial share price volatility with a change of 82.41%. This movement is meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.

Next Steps:

Collagen Solutions’s net buying tells us the stock is in favour with some insiders, which is fairly consistent with earnings growth expectations, as well as the significant share price volatility over the same period of trade. 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 essential factors 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.