National Veterinary Care Limited provides veterinary services in Australia and New Zealand. National Veterinary Care is one of Australia’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 5 million shares during this period. It is widely considered that insider buying stock in their own companies is potentially a bullish signal. A research published in The MIT Press (1998) concluded 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 analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.

See our latest analysis for National Veterinary Care

Which Insiders Are Buying?

Over the past three months, more shares have been bought than sold by National Veterinary Care’s’ insiders. In total, individual insiders own over 8 million shares in the business, which makes up around 12.9% of total shares outstanding. .

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

Invesco Ltd. Pengana Capital Ltd. Perennial Investment Partners 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 This Consistent With Future Growth?

At first glance, analysts’ earnings expectations of 109.40% over the next three years illustrates a very buoyant outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items,National Veterinary Care is expected 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. If insiders recognised this, a signal of their confidence may be their higher shareholdings in the company. Or they may simply view the share price is currently too low compared to the share’s intrinsic value.

Did Insiders Buy On Share Price Volatility?

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, National Veterinary Care’s share price traded at a high of A$3.15 and a low of A$2.56. This suggests some volatility with a share price change of of 23.05%. 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.