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Did Insiders Buy On Boral Limited’s (ASX:BLD) Price Volatility?

Boral Limited manufactures and supplies building and construction materials in Australia, the United States, and the Asia Pacific. Boral is one of Australia’s large-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 2.19 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%. But these signals may not be sufficient to gain confidence on whether to invest. I will be analysing whether these buying activities are supported by favourable future outlook and recent share price volatility.

See our latest analysis for Boral

Which Insiders Are Buying?

ASX:BLD Insider Trading August 29th 18
ASX:BLD Insider Trading August 29th 18

More shares have been bought than sold by Boral insiders in the past three months. In total, individual insiders own over 4.77 million shares in the business, which makes up around 0.41% of total shares outstanding. . The entity that bought on the open market in the last three months was The Vanguard Group Inc.. 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.

Does Buying Activity Reflect Future Growth?

ASX:BLD Future Profit August 29th 18
ASX:BLD Future Profit August 29th 18

At first glance, analysts’ earnings expectations of 98.7% over the next three years illustrates a very buoyant outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates, Boral is expected to experience a double-digit top-line growth over the next year, which seems to drive higher expected earnings growth as well. This could indicate significant cost-cutting activities or a high degree of economies of scale which may have a compounding impact in the future. Insiders recognising these benefits as defensible may accumulate their shares in the company. Another reason could simply be they deem the shares under-priced given the growth potential the business could produce.

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. Boral’s shares ranged between A$7.06 and A$6.24 over the past three months. This suggests a trivial share price movement, with a change of 13.14%. This may not be large enough to warrant any significant purchases, therefore the underlying driver may be the insiders’ belief of company growth prospects or simply their personal portfolio rebalancing.

Next Steps:

Boral’s insider meaningful buying activity tells us the shares are currently in favour, coherent with the sizeable growth in expected earnings, though share price volatility was perhaps inconsequential to cash in on any 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 essential aspects you should further examine:

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  1. Financial Health: Does Boral 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.

  2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Boral? 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.