Shine Corporate Limited provides damages based plaintiff litigation legal services in Australia; and insurance recovery consulting services in New Zealand. Shine’s insiders have invested more than 10 million shares in the small-cap stocks within the past three months. Generally, insiders buying more shares in their own firm sends a bullish signal. A two-decade research published in The MIT Press (1998) showed 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.
Check out our latest analysis for Shine
Who Are The Insiders?
There were more Shine insiders that have bought shares than those that have sold. In total, individual insiders own over 92 million shares in the business, which makes up around 53.09% of total shares outstanding. .
The entity that bought on the open market in the last three months was
Deutsche Bank Private Banking and Investment Banking Investments. 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 This Consistent With Future Growth?
Analysts’ expectations for earnings over the next 3 years of 12.20% provides a positive outlook for the company which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,Shine is expected to experience a limited level of revenue growth next year, which appears to negatively affect earnings growth given the expected rate of -7.69%. This indicates cost growth has outstripped revenue which is unsustainable. Although insiders may see prosperous times ahead given the current investment period, leading to their conviction to buy. Or else they may simply deem the stock to be undervalued by the negative sentiment.
Did Stock Price Volatility Instigate Buying?
An alternative reason for recent trades could be insiders taking advantage of the 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, Shine’s share price traded at a high of A$0.92 and a low of A$0.65. This suggests a fairly large volatility with a share price movement of 41.54%. Insiders may deem this relatively meaningful movement as an opportunity to increase their shareholdings.