RXP Services Limited provides information and communications technology consulting, development, support, and maintenance services to corporations and government bodies in the Asia-Pacific Region. RXP Services’s insiders have invested more than 6 million shares in the small-cap stocks within the past three months. Generally, insiders buying more shares in their own firm sends a bullish signal. The MIT Press (1998) published an article showing 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. I will be analysing whether these buying activities are supported by favourable future outlook and recent share price volatility.
See our latest analysis for RXP Services
Who Are The Insiders?
More shares have been bought than sold by RXP Services insiders in the past three months. In total, individual insiders own over 12 million shares in the business, which makes up around 7.67% of total shares outstanding. The following insiders have recently increased their company holdings: John Pittard (board member) and Ross Fielding (management and board member) .
The entity that bought on the open market in the last three months was
Australian Ethical Investment Ltd Microequities Asset Management Pty Limited. 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?
At first glance, analysts’ earnings expectations of 57.47% over the next three years illustrates an optimistic outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,RXP Services is believed to experience a double-digit top-line growth over the next year, which is expected to drive significant expected earnings growth as well. This is potentially an outcome of successful growth initiatives in place and strong cost controls, leading to sustainable operations. If insiders recognised this, a signal of their confidence may be their higher shareholdings in the company. Or they may simply view the share price is currently too low compared to the share’s intrinsic value.
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. In the past three months, RXP Services’s share price reached a high of A$0.7 and a low of A$0.47. This suggests a fairly large volatility with a share price movement of 48.94%. This movement is potentially meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.