Medibank Private Limited, an integrated healthcare company, provides private health insurance and health solutions in Australia. Medibank Private is one of Australia’s some insider buying over the past three months, with insiders investing in more than 83 million shares during this period. Generally, insiders buying more shares in their own firm sends a bullish 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. I will be analysing whether these buying activities are supported by favourable future outlook and recent share price volatility.
View our latest analysis for Medibank Private
Who Are The Insiders?
More shares have been bought than sold by Medibank Private insiders in the past three months. In total, individual insiders own over 1 million shares in the business, which makes up around 0.04% of total shares outstanding. .
The entity that bought on the open market in the last three months was
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.
Is Future Growth Outlook As Bullish?
On the surface, analysts’ earnings growth projection of 6.30% over the next three years provides a moderated outlook moving forward, however, insiders may be more optimistic than the market, with their net buying activity. Digging deeper into the line items,Medibank Private is expected to experience a rather subdued top-line growth over the next year, which impacts its earnings expectation resulting in a negative growth rate of -1.06%. Without proper cost controls, earnings could continue to exhibit negative growth which is unmaintainable. However, insiders may view this as the time of investment and growth given their bullish increase in holdings. Or else they may simply believe the stock is below its intrinsic value, giving them motivation to buy now.
Can Share Price Volatility Explain The Buy?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. In the past three months, Medibank Private’s share price reached a high of A$3.36 and a low of A$3. This suggests a trivial share price movement, with a change of 12%. This may mean insiders’ motivation to trade may not be driven by the share price but rather other factors such as their belief in company growth or their personal portfolio rebalancing.