ClearOne, Inc., together with its subsidiaries, designs, develops, and sells conferencing, collaboration, streaming, and digital signage solutions for audio/voice and visual communications in the United States and internationally. ClearOne’s insiders have invested 642,708 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. The MIT Press (1998) published an article showing that stocks following insider buying outperformed the market by 4.5%. However, these signals may not be enough to gain conviction on whether to invest. I will be analysing whether these buying activities are supported by favourable future outlook and recent share price volatility.

See our latest analysis for ClearOne

Which Insiders Are Buying?

More shares have been bought than sold by ClearOne insiders in the past three months. In total, individual insiders own over 4 million shares in the business, which makes up around 52.01% of total shares outstanding. The insider that recently bought more shares is Edward Bagley .

Does Buying Activity Reflect Future Growth?

From the outside, ClearOne’s future looks muffled. Delving 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. 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.

Did Stock Price Volatility Instigate Buying?

Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. In the past three months, ClearOne’s share price reached a high of $9 and a low of $6.95. This suggests moderate volatility with a share price movement of 29.5%. Perhaps not a significant enough movement to warrant transactions, thus motivation may be a result of their belief in the company in the future or simply personal portfolio rebalancing.

Next Steps:

ClearOne’s insider meaningful buying activity tells us the shares are currently in favour, 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 essential factors you should further research:

• 1. Financial Health: Does ClearOne 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.

• 2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of ClearOne? 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.