Iluka Resources Limited engages in the exploration, project development, mining, processing, and marketing of mineral sands. Iluka Resources’s insiders have invested more than 61 million shares in the within the past three months. It is widely considered that insider buying stock in their own companies is potentially 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’ve analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.

View our latest analysis for Iluka Resources

Which Insiders Are Buying?

More shares have been bought than sold by Iluka Resources insiders in the past three months. In total, individual insiders own less than one million shares in the business, or around 0.09% of total shares outstanding. Insiders that have recently bought more shares are: Gregory John Martin (board member) , James Ranck (board member) and Marcelo De Almeida Bastos (board member) .

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

Antares Capital Partners Pty. Ltd. Credit Suisse Asset Management (Switzerland) Credit Suisse Investment Banking and Securities Investments Mitsubishi UFJ Kokusai Asset Management Co. Ltd. MLC Investment Management Limited MLC Investments Limited Morgan Stanley Investment Management Inc. Morgan Stanley Investment Banking and Brokerage Investments OneVue Limited Schroder Investment Management Limited Schroder Investment Management North America Inc.. 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’ revenue growth expectations of 17.33% 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,Iluka Resources is expected to experience a limited level of revenue growth next year, Recognising this potential could be a motivation for the insiders’ decision 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. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. Iluka Resources’s shares ranged between A$12.05 and A$9.56 over the past three months. This indicates reasonable volatility with a change of 26.05%. 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:

Iluka Resources’s insider meaningful buying activity tells us the shares are currently in favour, coherent with the sizeable growth in expected earnings, though share price volatility was perhaps inconsequential to cash in on any mispricing. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve compiled two relevant aspects you should look at:

1. Financial Health: Does Iluka Resources 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 Iluka Resources? 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.