EBOS Group Limited engages in the marketing, wholesale, and distribution of healthcare, medical, pharmaceutical, and animal care products in Australia and New Zealand. EBOS Group’s insiders have invested more than 6 million 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%. But these signals may not be sufficient to gain confidence 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 EBOS Group
Which Insiders Are Buying?
Over the past three months, more shares have been bought than sold by EBOS Group’s’ insiders. In total, individual insiders own over 1 million shares in the business, which makes up around 0.91% of total shares outstanding. The entity that bought on the open market in the last three months was FMR LLC. 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.
Does Buying Activity Reflect Future Growth?
On the surface, analysts’ earnings growth projection of 21.50% over the next three years provides a decent outlook for the company which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items,analysts anticipate a limited level of revenue growth next year, but a double-digit earnings growth at 10.10%. This may be due to effective cost reduction initiatives implemented by the company to drive higher earnings. Net buying could signal high insider confidence, perhaps due to their belief of sustainable growth. Or they may simply see the current stock price is undervalued relative to intrinsic value.
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. EBOS Group’s shares ranged between NZ$18.55 and NZ$17.15 over the past three months. This indicates a relatively insignificant share price movement, with a small change of 8.16%. This could indicate insider transactions are not driven by share price changes but perhaps due to their belief of the company’s growth prospects or just personal portfolio re-weighting.
EBOS Group’s net buying tells us the stock is in favour with some insiders, which is relatively consistent with expected earnings growth, 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. there are two relevant aspects you should further research:
- Financial Health: Does EBOS 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.
- Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of EBOS Group? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!