Frasers Centrepoint Trust (“FCT”) is a leading developer-sponsored retail real estate investment trust. Frasers Centrepoint Trust’s insiders have invested 473,587 shares in the 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’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.

View our latest analysis for Frasers Centrepoint Trust

Who Are Ramping Up Their Shares?

More shares have been bought than sold by Frasers Centrepoint Trust insiders in the past three months. In total, individual insiders own over 6 million shares in the business, which makes up around 0.64% of total shares outstanding. .

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

Frasers Centrepoint Asset Management Ltd.. 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 -34.89% over the next three years illustrates poor outlook for the company, however, this is contrary to the signal company insiders are sending with their net buying activity. Delving deeper into the line items,Frasers Centrepoint Trust is expected to experience a rather subdued top-line growth over the next year, and along with high cost growth, is expected to contribute to a highly negative expected earnings growth. This indicates cost growth has outstripped revenue which is unsustainable. However, insiders may view this as a time of investing and growth given their bullish ramp up in shares. Or they may simply believe the stock is below intrinsic value, giving them motivation to buy now.

Did Insiders Buy On Share Price Volatility?

Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. Within the past three months, Frasers Centrepoint Trust’s share price traded at a high of SGD2.36 and a low of SGD2.12. This indicates an immaterial change in share price, with a movement of 11.32%. Potentially, insider transactions are not share price related but may be due to their belief on what will happen to the company in the future or simply just personal portfolio rebalancing.

Next Steps:

Frasers Centrepoint Trust’s insider meaningful buying activity tells us the shares are currently in favour, however, earnings expectations tell a different story, and the share price has not moved significantly to warrant reassessment of mispricing. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve put together two relevant aspects you should look at:

1. Financial Health: Does Frasers Centrepoint Trust have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Frasers Centrepoint Trust? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.