Pro-Pac Packaging Limited, together with its subsidiaries, manufactures and distributes industrial, protective, and rigid packaging products in Australia. Pro-Pac Packaging is one of Australia’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 32 million shares during this period. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic signal. A research published in The MIT Press (1998) concluded 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.

Check out our latest analysis for Pro-Pac Packaging

Which Insiders Are Buying?

There were more Pro-Pac Packaging insiders that have bought shares than those that have sold. In total, individual insiders own over 48 million shares in the business, which makes up around 8.36% of total shares outstanding. Latest buying activities involved the following insiders: and Rupert Harrington (board member) .

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

Investors Mutual 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.

Does Buying Activity Reflect Future Growth?

At first glance, analysts’ earnings expectations of 103.92% over the next three years illustrates a very optimistic 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,Pro-Pac Packaging is believed to experience an impressive double-digit top-line growth next year, which seems to drive high expected earnings growth as well. This may mean the company is reaping benefits from past growth initiatives, placing it in a beneficial position for future profits. Insiders’ conviction in this strong performance is signalled by their net buying activity. Or perhaps they merely see the stock undervalued by the market relative to the growth potential it will deliver.

Did Insiders Buy On Share Price Volatility?

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, Pro-Pac Packaging’s share price traded at a high of A$0.48 and a low of A$0.39. This indicates moderate volatility with a share price movement of 23.08%. 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.