Sims Metal Management Limited engages in buying, processing, and selling ferrous and non-ferrous recycled metals. Sims Metal Management’s insiders have invested more than 12 million shares in the large-cap stocks within the past three months. It is widely considered that insider buying stock in their own companies is potentially a bullish signal. The MIT Press (1998) published an article showing 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 Sims Metal Management
Which Insiders Are Buying?
Over the past three months, more shares have been bought than sold by Sims Metal Management’s’ insiders. In total, individual insiders own less than one million shares in the business, or around 0.15% of total shares outstanding. .
The entity that bought on the open market in the last three months was
Macquarie Group Ltd. Banking & Securities Investments Macquarie Investment Management Australia Limited Macquarie Investment Management Limited Paradice Investment Management Pty Ltd. UBS Asset Management. 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?
At first glance, analysts’ earnings expectations of -4.23% over the next three years illustrates negative outlook for the business, however, this is contrary to the signal company insiders are sending with their net buying activity. Delving deeper into the line items,analysts anticipate a strong double-digit revenue growth next year, which has not flown down into earnings expectations based on its negative growth rate of -4.96%. This means cost growth is anticipated to outstrip revenues, indicating a period of investment and growth in the company. This seems to be supported by insiders’ conviction illustrated by their net buying activities. Or else they may simply deem the company as undervalued by the market based on future growth it could produce.
Did Stock Price Volatility Instigate Buying?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. 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, Sims Metal Management’s share price traded at a high of A$17.68 and a low of A$13.34. This suggests reasonable volatility with a change of 32.53%. 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.