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Peninsula Energy Limited, together with its subsidiaries, explores for, develops, and mines uranium properties in the United States. Peninsula Energy’s insiders have invested more than 6 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 will be analysing whether these buying activities are supported by favourable future outlook and recent share price volatility.
See our latest analysis for Peninsula Energy
Which Insiders Are Buying?
Over the past three months, more shares have been bought than sold by Peninsula Energy’s’ insiders. In total, individual insiders own over 5 million shares in the business, which makes up around 2.15% of total shares outstanding. .
The entity that bought on the open market in the last three months was
Global X Management Company LLC. 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?
On the surface, analysts’ revenue growth projection of 193.40% over the next three years provides a very buoyant outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,analysts anticipate a sizeable revenue growth over the next year, which is expected to drive significant expected earnings growth as well. This is potentially an outcome of successful growth initiatives in place and strong cost controls, leading to sustainable operations. If insiders believe these benefits are defensible, this could be a motivation for the net buying activity. Another reason could simply be they deem the shares under-priced given the growth potential the business could produce.
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. In the past three months, Peninsula Energy’s share price reached a high of A$0.4 and a low of A$0.22. This indicates meaningful movements in the share price with a change of 79.55%. This movement is meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.