Are Insiders Too Confident In Smurfit Kappa Group plc (ISE:SK3)?

Smurfit Kappa Group plc, together with its subsidiaries, manufactures, distributes, and sells paper-based packaging products. Smurfit Kappa Group's insiders have invested more than 14.12 million shares in the large-cap stocks within the past three months. Generally, insiders buying more shares in their own firm sends a bullish signal. A research published in The MIT Press (1998) concluded that stocks following insider buying outperformed the market by 4.5%. However, these signals may not be enough to gain conviction on whether to invest. I’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares. Check out our latest analysis for Smurfit Kappa Group

Who Are Ramping Up Their Shares?

Over the past three months, more shares have been bought than sold by Smurfit Kappa Group's' insiders. In total, individual insiders own over 2.44 million shares in the business, which makes up around 1.04% of total shares outstanding. Insiders that have recently ramped up their holdings are:

Name	Management	Board	Total Annual Compensation
Ken Bowles	✔	✔	€0920.00k

The entity that bought on the open market in the last three months was Aberdeen Asset Management PLC Allianz Asset Management AG BlackRock Inc. BNP Paribas Private & Investment Banking Investments BNY Mellon Asset Management Columbia Management Investment Advisers LLC Deutsche Asset & Wealth Management GIC Pte. Ltd. Janus Henderson Group plc Legal & General Investment Management Limited Societe Generale Group Banking Investments Wellington Management Group LLP. Although this is an institutional investor, rather than a company executive or board member, the insights gained from direct access to management as a large investor would make it more well-informed than the average retail investor. In this specific instance, I would classify this investor as a company insider.

Is This Consistent With Future Growth?

Analysts’ expectations for earnings over the next 3 years of 52.50% provides an upbeat outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Digging deeper into the line items, analysts anticipate a restrained level of top-line growth over the next year, but a suggestively greater level of expected earnings growth. This could indicate large cost-cutting initiatives by the company to boost its earnings. Insider confidence in the company could be signalled by their net buying activity as they expect sustained growth moving forward. Or they may believe share price is below intrinsic value, offering an opportunity to buy.

Can Share Price Volatility Explain The Buy?

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. Within the past three months, Smurfit Kappa Group’s share price traded at a high of €36.64 and a low of €32.92. This suggests a trivial share price movement, with a change of 11.3%. Potentially, insider transactions are not share price related but may be due to their belief on what will happen to the company in the future or simply just personal portfolio rebalancing.

Next Steps:

Smurfit Kappa Group’s insider meaningful buying activity tells us the shares are currently in favour, reinforced by the substantial earnings growth expectations, 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 key aspects you should look at:

1. Financial Health: Does Smurfit Kappa Group 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 Smurfit Kappa Group? 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.