S&W Seed Company, an agricultural company, engages in breeding, growing, processing, and selling alfalfa seeds. S&W Seed is one of United States’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in 285.10k shares during this period. It is widely considered that insider buying stock in their own companies is potentially a bullish signal. The MIT Press (1998) published an article showing 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 S&W Seed
Who Are Ramping Up Their Shares?
There were more S&W Seed insiders that have bought shares than those that have sold. In total, individual insiders own over 1.02 million shares in the business, which makes up around 4.2% of total shares outstanding. The entity that bought on the open market in the last three months was MFP Investors 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.
Is Future Growth Outlook As Bullish?To the outsider, there are dark clouds on the horizon for S&W Seed. Probing further into annual growth rates, S&W Seed is expected to experience negative growth in its top-line over the next year, which indicates the company may be facing some headwinds. Though, next year’s expected earnings will deliver a sizeable growth which may mean the company’s cost-cutting initiative will be meaningful enough to more than offset negative revenue growth. Insider buying activities show that they have confidence in its ability to continue growing. They could believe the company is in the midst of a successful turnaround or simply deem the stock is well-below its intrinsic value, with negative sentiment over-discounting the share price.
Did Stock Price Volatility Instigate Buying?Alternatively, the timing of these insider transactions may have been driven by share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Within the past three months, S&W Seed’s share price traded at a high of $3.8 and a low of $3.15. This suggests reasonable volatility with a change of 20.63%. This may not be large enough to warrant any significant purchases, therefore the underlying driver may be the insiders’ belief of company growth prospects or simply their personal portfolio rebalancing.
S&W Seed’s net buying tells us the stock is in favour with some insiders, reinforced by the substantial earnings growth expectations, though share price volatility was perhaps inconsequential to cash in on any mispricing. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve compiled two important factors you should further examine:
- Financial Health: Does S&W Seed 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 S&W Seed? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!