China Gas Holdings Limited’s’ (HKG:384) is one of Hong Kong’s large-cap stocks operating in the HK Gas Utilities industry. China Gas Holdings saw some insider buying over the past three months, with insiders investing in more than 8 million shares during this period. Generally, insiders buying more shares in their own firm sends a bullish 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.
Check out our latest analysis for China Gas Holdings
Who Are The Insiders?
There were more China Gas Holdings insiders that have bought shares than those that have sold. In total, individual insiders own over 412 million shares in the business, which makes up around 8.28% of total shares outstanding. .
The entity that bought on the open market in the last three months was
Capital Research and Management Company. 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?
At first glance, analysts’ earnings expectations of 44.37% over the next three years illustrates an upbeat outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items,analysts anticipate a strong double-digit revenue growth next year, which seems to flow through to its expected earnings growth of 14.77%. Improved cost management and sustained high revenue growth could lead to higher earnings growth 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.
Did Stock Price Volatility Instigate Buying?
Alternatively, the timing of these insider transactions may have been driven by 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. Within the past three months, China Gas Holdings’s share price traded at a high of HK$25.2 and a low of HK$20.7. This suggests some volatility with a share price change of of 21.74%. 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.