Yahoo Finance Should You Follow This Trend For Baby Bunting Group Limited (ASX:BBN)?
Baby Bunting Group Limited operates as specialty retailer of baby goods in Australia. Baby Bunting Group’s insiders have invested more than 9 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 two-decade research published in The MIT Press (1998) showed that stocks following insider buying outperformed the market by 4.5%. However, it may not be sufficient to base your investment decision merely on these signals. I’ve analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.
Check out our latest analysis for Baby Bunting Group
Who Are The Insiders?
Over the past three months, more shares have been bought than sold by Baby Bunting Group’s’ insiders. In total, individual insiders own over 8 million shares in the business, which makes up around 6.04% of total shares outstanding. .
The entity that bought on the open market in the last three months was
AustralianSuper Pty Ltd Colonial First State Asset Management (Australia) Limited Perpetual 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.
Does Buying Activity Reflect Future Growth?
Analysts’ expectations for earnings over the next 3 years of 47.01% provides a buoyant outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Digging deeper into the line items,Baby Bunting Group is expected to experience a rather subdued top-line growth over the next year, but a double-digit earnings growth at 11.73%. This may mean the company’s cost-cutting initiative will be significant enough to boost earnings. Insiders ramping up shares could gesture confidence in sustainable growth rates. Or they may merely see a buying opportunity due to undervaluation at the current share price.
Can Share Price Volatility Explain The Buy?
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. In the past three months, Baby Bunting Group’s share price reached a high of A$1.57 and a low of A$1.26. This indicates some volatility with a share price change of of 24.11%. 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:
Baby Bunting Group’s net buying tells us the stock is in favour with some insiders, which is coherent with the positive growth in expected earnings, even if the low share price volatility did not warrant exploiting any mispricing. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve put together two key factors you should further examine:
Financial Health: Does Baby Bunting 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 Baby Bunting 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.
