oOh!media Limited operates as an out of home media company in Australia and New Zealand. oOh!media is one of Australia’s large-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 16.7 million shares during this period. 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements. View out our latest analysis for oOh!media
Who Are The Insiders?
ASX:OML Insider_trading July 11th 18 Over the past three months, more shares have been bought than sold by oOh!media’s’ insiders. In total, individual insiders own over 1.5 million shares in the business, which makes up around 0.66% of total shares outstanding. The entity that bought on the open market in the last three months was AustralianSuper Pty Ltd Wellington Management Group LLP Yarra Funds Management 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?
ASX:OML Future Profit July 11th 18 Analysts’ expectations for earnings over the next 3 years of 61.90% 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, analysts anticipate a limited level of revenue growth next year, but a significantly higher expected earnings growth. Usually this discrepancy can be explained by an equally significant drop in costs. 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. Within the past three months, oOh!media’s share price traded at a high of A$5.46 and a low of A$4.56. This indicates some volatility with a share price change of of 19.74%. 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.
oOh!media’s net buying tells us the stock is in favour with some insiders, reinforced by the substantial earnings growth expectations, although the share price has not moved significantly to warrant reassessment of 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 important aspects you should further research:
- Financial Health: Does oOh!media 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 oOh!media? 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.
Daniel Loeb has achieved 16.2% annualized returns over the last 20 years. What is he holding today?
Founder of the event-driven, value-oriented hedge fund Third Point, Daniel Loeb is one of the most successful activist investors on the market today. Explore his portfolio’s top holdings, see how he diversifies his investments, past performance and growth estimates. Click here to view a FREE detailed infographic analysis of Daniel Loeb’s investment portfolio.