Costa Group Holdings Limited produces, packs, and markets fruits and vegetables to food retailers and FMCG companies in Australia. Costa Group Holdings’s insiders have invested more than 6.09 million shares in the large-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. I will be analysing whether these buying activities are supported by favourable future outlook and recent share price volatility.
Check out our latest analysis for Costa Group Holdings
Who Are The Insiders?
Over the past three months, more shares have been bought than sold by Costa Group Holdings’s’ insiders. In total, individual insiders own over 18.39 million shares in the business, which makes up around 5.75% of total shares outstanding. . The entity that bought on the open market in the last three months was Challenger Limited Colonial First State Asset Management (Australia) Limited MLC Investment 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?
At first glance, analysts’ earnings expectations of 0.05% over the next three years illustrates a moderated outlook moving forward, however, insiders may be more optimistic than the market, with their net buying activity. Probing further into annual growth rates, analysts anticipate a strong double-digit revenue growth next year, which has not dropped down into the expected bottom-line due to its large negative growth rate. This illustrates high cost growth relative to incoming revenues, and could portray times of high investment and growth in the company. Insiders’ net buying activities seem to support the idea of growth moving forward. Or they may simply view the current share price as too low relative to its intrinsic value.
Did Stock Price Volatility Instigate Buying?
An alternative reason for recent trades could be insiders taking advantage of the share price volatility. 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, Costa Group Holdings’s share price reached a high of A$8.96 and a low of A$7.37. This indicates reasonable volatility with a change of 21.66%. This movement is potentially meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.