Altium Limited develops and sells computer software for the design of electronic products in the United States and internationally. Altium’s insiders have invested more than 5 million shares in the within the past three months. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic signal. A two-decade research published in The MIT Press (1998) showed 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’ve analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.
View our latest analysis for Altium
Which Insiders Are Buying?
There were more Altium insiders that have bought shares than those that have sold. In total, individual insiders own over 14 million shares in the business, which makes up around 10.98% of total shares outstanding. .
The entity that bought on the open market in the last three months was
Vinva Investment Management. 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?
On the surface, analysts’ earnings growth projection of 70.24% over the next three years provides a buoyant outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items,analysts anticipate a healthy double-digit top-line growth next year, which is expected to drive an earnings growth rate of 26.53%. Improved cost management and sustained high revenue growth could lead to higher earnings growth in the future. Insiders recognising these benefits as defensible may accumulate their shares in the company. Another reason could simply be they deem the shares under-priced given the growth potential the business could produce.
Did Insiders Buy On Share Price Volatility?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. In the past three months, Altium’s share price reached a high of A$22.18 and a low of A$14.15. This suggests reasonably high share price volatility with a change of 56.75%. This movement could potentially be significant enough to warrant insiders to accrue their shares.