Sunac China Holdings Limited’s (HKG:1918) Insiders Ramped Up Holdings – Should You?

Sunac China Holdings Limited, together with its subsidiaries, develops residential and commercial properties in the People’s Republic of China. Sunac China Holdings’s insiders have invested 500,000 shares in the large-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%. However, it may not be sufficient to base your investment decision merely on these signals. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.

See our latest analysis for Sunac China Holdings

Who Are Ramping Up Their Shares?

SEHK:1918 Insider_trading Jun 1st 18
SEHK:1918 Insider_trading Jun 1st 18
More shares have been bought than sold by Sunac China Holdings insiders in the past three months. In total, individual insiders own over 2122 million shares in the business, which makes up around 48.2% of total shares outstanding. The following insiders have recently increased their company holdings:
Name Management Board Total Annual Compensation
Mengde Wang ¥6,006,000

Does Buying Activity Reflect Future Growth?

SEHK:1918 Future Profit Jun 1st 18
SEHK:1918 Future Profit Jun 1st 18

On the surface, analysts’ earnings growth projection of 159.73% over the next three years provides a spectacular outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,analysts anticipate a sizeable revenue growth over the next year, which appears to flow through to an earnings growth of 27.04%. Continued revenue growth combined with cost-efficiency initiatives could lead to even higher earnings growth going forward. This may be anticipated by insiders which provides a motivation to increase their holdings. Another reason for the timing of share acquisitions could be because they believe the stock has not fully accounted for the growth potential.

Can Share Price Volatility Explain The Buy?

Alternatively, the timing of these insider transactions may have been driven by share price volatility. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. Within the past three months, Sunac China Holdings’s share price traded at a high of HK$36 and a low of HK$28. This suggests reasonable volatility with a change of 28.57%. Perhaps not a significant enough movement to warrant transactions, thus motivation may be a result of their belief in the company in the future or simply personal portfolio rebalancing.

Next Steps:

Sunac China Holdings’s net buying tells us the stock is in favour with some insiders, which is fairly consistent with earnings growth expectations, even if the low share price volatility did not warrant exploiting any 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 important factors you should look at:

  1. Financial Health: Does Sunac China Holdings 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 Sunac China Holdings? 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.