Yahoo Finance How Confident Are Insiders About GWA Group Limited (ASX:GWA)?
GWA Group Limited engages in the research, design, manufacture, import, marketing, and distribution of building fixtures and fittings to residential and commercial premises in Australia, New Zealand, and international markets. GWA Group’s insiders have invested more than 10.79 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%. However, these signals may not be enough to gain conviction 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 GWA Group
Who Are The Insiders?
More shares have been bought than sold by GWA Group insiders in the past three months. In total, individual insiders own over 16.69 million shares in the business, which makes up around 6.32% of total shares outstanding.
Does Buying Activity Reflect Future Growth?
On the surface, analysts’ earnings growth projection of 3.98% over the next three years provides 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, analysts anticipate negative growth in its top-line over the next year, which indicates the company may be facing some headwinds. This will likely flow through to its earnings next year with a growth of -4.07%, indicating cost-cutting may not be significant enough to pull it through into a positive growth region yet. However, company insiders appear to know something the market doesn’t and have been investing more money into the stock. This may mean they believe in a turnaround or believe the stock is well-undervalued by negative market sentiment.
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, GWA Group’s share price traded at a high of A$3.93 and a low of A$3.2. This indicates moderate volatility with a share price movement of 22.81%. Perhaps not a significant enough movement to warrant transactions, thus motivation may be a result of their belief in the company in the future or simply personal portfolio rebalancing.
Next Steps:
GWA Group’s insider meaningful buying activity tells us the shares are currently in favour, although the expected earnings growth challenges this conclusion, and the share price movement may be too trivial to cash in on any mispricing. However, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve compiled two relevant aspects you should further research:
Financial Health: Does GWA Group 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 GWA Group? 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.
