Alliance Data Systems Corporation provides data-driven marketing and loyalty solutions worldwide. Alliance Data Systems’s insiders have invested 205,246 shares in the large-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%. 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.
Check out our latest analysis for Alliance Data Systems
Which Insiders Are Buying?
Over the past three months, more shares have been bought than sold by Alliance Data Systems’s’ insiders. In total, individual insiders own over 1 million shares in the business, which makes up around 2.6% of total shares outstanding. .
The entity that bought on the open market in the last three months was
ValueAct Capital Management L.P.. 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 This Consistent With Future Growth?
At first glance, analysts’ earnings expectations of 55.49% over the next three years illustrates 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,analysts anticipate a restrained level of top-line growth over the next year, but a strong double-digit earnings growth of 20.69%. This may be due to effective cost reduction initiatives implemented by the company to drive higher earnings. Net buying could signal high insider confidence, perhaps due to their belief of sustainable growth. Or they may simply see the current stock price is undervalued relative to intrinsic value.
Did Stock Price Volatility Instigate Buying?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Within the past three months, Alliance Data Systems’s share price traded at a high of $245.66 and a low of $194.64. This indicates reasonable volatility with a change of 26.21%. Insiders’ purchases may not be driven by this movement but perhaps their view of the company’s growth in the future or simply their individual portfolio rebalancing.