Yahoo Finance Are Insiders Cautious About OFX Group Limited (ASX:OFX) Shares?
OFX Group Limited provides online international payments and foreign exchange services for consumer and business clients in Australia, New Zealand, Europe, North America, and Asia. OFX Group is one of Australia’s small-cap stocks that saw some insider selling over the past three months, with insiders divesting from more than 3.28 million shares during this period. It is widely considered that insider selling stock in their own companies is potentially a bearish signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. But these signals may not be sufficient to gain confidence on whether to divest. I will be analysing whether these selling activities are supported by favourable future outlook and recent share price volatility.
View our latest analysis for OFX Group
Who Are The Insiders?
There were more OFX Group insiders that have sold shares than those that have bought. In total, individual insiders own over 24.1 million shares in the business, which makes up around 9.71% of total shares outstanding. . The entity that sold on the open market in the last three months was Pendal Group 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 This Consistent With Future Growth?
Analysts’ expectations for earnings over the next 3 years of 35.7% provides a strong outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, OFX Group is believed to experience a rather subdued top-line growth over the next year, however, earnings growth is expected to be strong at 15.4%. This may mean the company has effectively managed costs in order to pump up earnings growth. However, this exercise may not be viable over the long run which may prompt insiders to reconsider their shareholdings. Or else they may view the market has overvalued the stock, presenting a favourable environment to sell.
Can Share Price Volatility Explain The Sell?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. OFX Group’s shares ranged between A$2.07 and A$1.71 over the past three months. This suggests moderate volatility with a share price movement of 21.05%. 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 needs.
Next Steps:
OFX Group’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, though the positive growth in expected earnings tells us a different story, and the relatively stable stock price may not warrant exploiting any mispricing. However it’s crucial to note that insider divesting may have nothing to do with their views on the company’s future performance. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve put together two essential factors you should look at:
Financial Health: Does OFX 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 OFX 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 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.
