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China Hongqiao Group Limited, an investment holding company, manufactures and sells aluminum products in the People’s Republic of China and Indonesia. China Hongqiao Group is one of China’s large-cap stocks that saw some insider buying over the past three months, with insiders investing in 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’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.
View our latest analysis for China Hongqiao Group
Who Are Ramping Up Their Shares?
There were more China Hongqiao Group insiders that have bought shares than those that have sold. In total, individual insiders own over 5977.96 million shares in the business, which makes up around 68.43% of total shares outstanding. The insider that recently bought more shares is Shiping Zhang (management and board member) .
Is This Consistent With Future Growth?
On the surface, analysts’ earnings growth projection of 145% over the next three years provides an exceptional outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items, China Hongqiao Group is expected to experience a restrained level of top-line growth over the next year, but a suggestively greater level of expected earnings growth. Generally, this difference can be explained by a large drop in cost growth. Insider confidence in the company could be signalled by their net buying activity as they expect sustained growth moving forward. Or they may believe share price is below intrinsic value, offering an opportunity to buy.
Can Share Price Volatility Explain The Buy?
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. Within the past three months, China Hongqiao Group’s share price traded at a high of HK$8.69 and a low of HK$6.25. This suggests a fairly large volatility with a share price movement of 39.04%. This movement is potentially meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.
Next Steps:
China Hongqiao Group’s insider meaningful buying activity tells us the shares are currently in favour, which is consistent with the significant expected earnings growth, and a fairly high volatility in share price over the same time period. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve compiled two key factors you should further research: