Yahoo Finance Should You Buy Japara Healthcare Limited (ASX:JHC) When Insiders Do?
Japara Healthcare Limited, together with its subsidiaries, owns, develops, and operates residential aged care facilities in Australia. Japara Healthcare’s insiders have invested more than 4.34 million shares in the small-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. A research published in The MIT Press (1998) concluded that stocks following insider buying outperformed the market by 4.5%. But these signals may not be sufficient to gain confidence on whether to invest. I’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares. Check out our latest analysis for Japara Healthcare
Which Insiders Are Buying?
More shares have been bought than sold by Japara Healthcare insiders in the past three months. In total, individual insiders own over 17.78 million shares in the business, which makes up around 6.69% of total shares outstanding.
Does Buying Activity Reflect Future Growth?
At first glance, analysts’ earnings expectations of 9.81% over the next three years illustrates a moderated outlook moving forward, however, insiders may be more optimistic than the market, with their net buying activity. Probing further into annual growth rates, Japara Healthcare is expected to experience a rather subdued top-line growth over the next year, which is expected to negatively impact the bottom line, with a growth rate of -12.86%. 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. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. Within the past three months, Japara Healthcare’s share price traded at a high of A$2.07 and a low of A$1.76. This indicates some volatility with a share price change of of 17.95%. Insiders’ purchases may not be driven by this movement but perhaps their view of the company’s growth in the future or simply their individual portfolio rebalancing.
Next Steps:
Japara Healthcare’s net buying tells us the stock is in favour with some insiders, however, earnings expectations tell a different story, and the share price has not moved significantly to warrant reassessment of mispricing. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve compiled two fundamental factors you should further examine:
Financial Health: Does Japara Healthcare have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Japara Healthcare? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
