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Fufeng Group Limited, an investment holding company, engages in the manufacture and sale of fermentation-based food additive, and biochemical and starch-based products in the People’s Republic of China and internationally. Fufeng Group’s insiders have invested more than 3.42 million shares in the large-cap stocks within the past three months. It is widely considered that insider buying stock in their own companies is potentially a bullish signal. A research published in The MIT Press (1998) concluded 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 assessed two potential reasons behind the insiders’ latest motivation to buy more shares.
Check out our latest analysis for Fufeng Group
Which Insiders Are Buying?
More shares have been bought than sold by Fufeng Group insiders in the past three months. In total, individual insiders own over 1025.19 million shares in the business, which makes up around 40.25% of total shares outstanding. . The entity that bought on the open market in the last three months was TreeTop Asset Management S.A.. 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?
At first glance, analysts’ earnings expectations of 55.99% over the next three years illustrates 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, Fufeng Group 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’ conviction in this strong performance is illustrated by their ramp up in shareholdings. Or they may merely believe the stock is undervalued by the market relative to the growth potential it will deliver.
Can Share Price Volatility Explain The Buy?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. 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, Fufeng Group’s share price traded at a high of HK$4.57 and a low of HK$3.45. This suggests moderate volatility with a share price movement of 32.46%. This movement is potentially meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.