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HKBN Ltd. provides telecommunication services to residential and enterprise markets in Hong Kong. HKBN is one of Hong Kong’s some insider buying over the past three months, with insiders investing in more than 1 million shares during this period. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic signal. A research published in The MIT Press (1998) concluded 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 HKBN
Who Are The Insiders?
Over the past three months, more shares have been bought than sold by HKBN’s’ insiders. In total, individual insiders own over 60 million shares in the business, which makes up around 5.96% of total shares outstanding. The insider that recently bought more shares is Bradley Horwitz (board member) .
The entity that bought on the open market in the last three months was
Capital Research and Management Company. 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?
Analysts’ expectations for earnings over the next 3 years of 285.94% provides a very buoyant outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,analysts anticipate a double-digit top-line growth over the next year, which seems to drive higher expected earnings growth as well. This could indicate significant cost-cutting activities or a high degree of economies of scale which may have a compounding impact in the future. 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?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. Within the past three months, HKBN’s share price traded at a high of HK$10.42 and a low of HK$9.05. This indicates moderate volatility with a share price movement of 15.14%. 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.