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Frencken Group Limited, an investment holding company, operates as a capital and consumer equipment service provider worldwide. Frencken Group is one of Malaysia’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in 164,100 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%. 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.
View our latest analysis for Frencken Group
Which Insiders Are Buying?
More shares have been bought than sold by Frencken Group insiders in the past three months. In total, individual insiders own over 52 million shares in the business, which makes up around 12.32% of total shares outstanding. The insider that recently bought more shares is Soon Chai Gooi (board member) .
Does Buying Activity Reflect Future Growth?
Analysts’ expectations for earnings over the next 3 years of -11.42% provides negative outlook for the business, however, this is contrary to the signal company insiders are sending with their net buying activity. Digging deeper into the line items,Frencken Group is expected to experience a limited level of revenue growth next year, but a strong double-digit earnings growth of 16.54%. This may be due to effective cost reduction initiatives implemented by the company to drive higher earnings. Insiders ramping up shares could gesture confidence in sustainable growth rates. Or they may merely see a buying opportunity due to undervaluation at the current share price.
Did Insiders Buy On Share Price Volatility?
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. In the past three months, Frencken Group’s share price reached a high of SGD0.67 and a low of SGD0.54. This indicates reasonable volatility with a change of 24.07%. Perhaps not a significant enough movement to warrant transactions, thus motivation may be a result of their belief in the company in the future or simply personal portfolio rebalancing.
Next Steps:
Frencken Group’s insider meaningful buying activity tells us the shares are currently in favour, which is coherent with the positive growth in expected earnings, 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 put together two relevant aspects you should further examine: