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Netwealth Group Limited operates in the wealth management industry in Australia. Netwealth Group’s insiders have invested more than 3.41 million shares in the large-cap stocks within the past three months. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic 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’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.
View our latest analysis for Netwealth Group
Which Insiders Are Buying?
Over the past three months, more shares have been bought than sold by Netwealth Group’s’ insiders. In total, individual insiders own over 160.39 million shares in the business, which makes up around 67.48% of total shares outstanding. . The entity that bought on the open market in the last three months was Hyperion Asset Management 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.
Is Future Growth Outlook As Bullish?
Analysts’ expectations for earnings over the next 3 years of 330.57% provides a very optimistic outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items, Netwealth Group is believed to experience a sizeable revenue growth over the next year, which is expected to drive significant expected earnings growth as well. This could indicate some degree of economies of scale which may have a compounding impact in the future. Insiders’ conviction in this strong performance is signalled by their net buying activity. Or perhaps they merely see the stock undervalued by the market relative to the growth potential it will deliver.
Did Stock Price Volatility Instigate Buying?
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, Netwealth Group’s share price reached a high of A$9.62 and a low of A$7.2. This indicates reasonable volatility with a change of 33.61%. This movement could potentially be significant enough to warrant insiders to accrue their shares.