Pacific Energy Limited, together with its subsidiaries, develops, builds, operates, and manages electricity generation facilities in Australia. Pacific Energy’s insiders have invested more than 26 million shares in the small-cap stocks within the past three months. Generally, insiders buying more shares in their own firm sends a bullish 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.

Check out our latest analysis for Pacific Energy

Which Insiders Are Buying?

There were more Pacific Energy insiders that have bought shares than those that have sold. In total, individual insiders own over 14 million shares in the business, which makes up around 3.82% of total shares outstanding. .

The entity that bought on the open market in the last three months was

Perennial Value 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.

Is This Consistent With Future Growth?

Analysts’ expectations for earnings over the next 3 years of -1.68% provides negative outlook for the business, however, this is contrary to the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,analysts anticipate a restrained level of top-line growth over the next year, but a strong double-digit earnings growth of 10.84%. This may mean the company’s cost-cutting initiative will be significant enough to boost earnings. Net buying could signal high insider confidence, perhaps due to their belief of sustainable growth. Or they may simply see the current stock price is undervalued relative to intrinsic value.

Can Share Price Volatility Explain The Buy?

An alternative reason for recent trades could be insiders taking advantage of the share price volatility. 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, Pacific Energy’s share price reached a high of A$0.61 and a low of A$0.52. This indicates some volatility with a share price change of of 17.48%. 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.