Prosperity REIT [SEHK: 808] is a Hong Kong collective investment scheme authorized under section 104 of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). Prosperity Real Estate Investment Trust is one of Hong Kong’s large-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 4.05 million shares during this period. 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, these signals may not be enough to gain conviction on whether to invest. I’ve analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.
Check out our latest analysis for Prosperity Real Estate Investment Trust
Which Insiders Are Buying?
There were more Prosperity Real Estate Investment Trust insiders that have bought shares than those that have sold. In total, individual insiders own less than one million shares in the business, or around 0.024% of total shares outstanding. . The entity that bought on the open market in the last three months was ARA 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?
On the surface, analysts’ earnings growth projection of -69.0% over the next three years provides poor outlook for the company, however, this is contrary to the signal company insiders are sending with their net buying activity. Digging deeper into the line items, Prosperity Real Estate Investment Trust is expected to experience a rather subdued top-line growth over the next year, which contributes to the highly negative expected earnings growth. This indicates cost growth has outstripped revenue which is unsustainable. However, insiders may view this as a time of investing and growth given their bullish ramp up in shares. Or they may simply believe the stock is below intrinsic value, giving them motivation to buy now.
Can Share Price Volatility Explain The Buy?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. 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, Prosperity Real Estate Investment Trust’s share price reached a high of HK$3.29 and a low of HK$3.09. This suggests an immaterial change in share price, with a movement of 6.47%. This could indicate insider transactions are not driven by share price changes but perhaps due to their belief of the company’s growth prospects or just personal portfolio re-weighting.