Melbourne IT Limited, together with its subsidiaries, provides cloud-based technology solutions. Melbourne IT is one of Australia’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 21 million shares during this period. 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’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.
View our latest analysis for Melbourne IT
Who Are The Insiders?
Over the past three months, more shares have been bought than sold by Melbourne IT’s’ insiders. In total, individual insiders own over 12 million shares in the business, which makes up around 10.48% of total shares outstanding. The insider that recently bought more shares is Naseema Sparks (board member) .
The entity that bought on the open market in the last three months was
BlackRock Inc. Deutsche Bank Private Banking and Investment Banking Investments MAM Pty Limited Wilson Asset Management (International) Pty 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.
Is Future Growth Outlook As Bullish?
On the surface, analysts’ earnings growth projection of 47.78% over the next three years provides an optimistic outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items,Melbourne IT is believed to experience a double-digit top-line growth over the next year, which appears to flow through to larger earnings growth expectations. This may mean the company is reaping meaningful benefits from past growth initiatives, placing it in a beneficial position for future profits. 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?
An alternative reason for recent trades could be insiders taking advantage of the 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. Melbourne IT’s shares ranged between A$3.84 and A$3.16 over the past three months. This suggests moderate volatility with a share price movement of 21.52%. 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.