NRW Holdings Limited, through its subsidiaries, provides civil and mining contracting services to resource and infrastructure sectors in Australia. NRW Holdings’s insiders have invested more than 19 million 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. A two-decade research published in The MIT Press (1998) showed 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’ve analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.

See our latest analysis for NRW Holdings

Who Are Ramping Up Their Shares?

More shares have been bought than sold by NRW Holdings insiders in the past three months. In total, individual insiders own over 28 million shares in the business, which makes up around 7.63% of total shares outstanding. .

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

Wellington Management Group LLP. 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?

From the outside, NRW Holdings’s future looks optimistic. Digging deeper into the line items,analysts anticipate a large double-digit top-line growth over the next year, which appears to flow through to an earnings growth of 22.69%. Continued revenue growth combined with cost-efficiency initiatives could lead to even higher earnings growth going forward. This may be anticipated by insiders which provides a motivation to increase their holdings. Another reason for the timing of share acquisitions could be because they believe the stock has not fully accounted for the growth potential.

Did Insiders Buy On Share Price Volatility?

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. Within the past three months, NRW Holdings’s share price traded at a high of A$1.73 and a low of A$1.35. This suggests moderate volatility with a share price movement of 27.78%. 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.