Premier Investments Limited operates various specialty retail fashion chains in Australia, New Zealand, Singapore, the United Kingdom, Malaysia, and Hong Kong. PMV is one of Australia’s large-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 3 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, these signals may not be enough to gain conviction on whether to invest. I’ve analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.
View our latest analysis for Premier Investments
Which Insiders Are Buying?
More shares have been bought than sold by Premier Investments insiders in the past three months. In total, individual insiders own over 13 million shares in the business, which makes up around 8.46% of total shares outstanding. The entity that bought on the open market in the last three months was Airlie Funds Management Pty 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?
On the surface, analysts’ earnings growth projection of 36.80% over the next three years provides an upbeat outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,PMV is believed to experience a limited level of revenue growth next year, but a double-digit earnings growth at 15.53%. This may mean the company’s cost-cutting initiative will be significant enough to boost earnings. Net buying could signal high insider confidence, perhaps due to their belief of sustainable growth. Or they may simply see the current stock price is undervalued relative to intrinsic value.
Did Insiders Buy On Share Price Volatility?
An alternative reason for recent trades could be insiders taking advantage of the 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, Premier Investments’s share price traded at a high of $13.75 and a low of $12.42. This indicates an immaterial change in share price, with a movement of 10.71%. This could indicate insider transactions are not driven by share price changes but perhaps due to their belief of the company’s growth prospects or just personal portfolio re-weighting.
The reason to track insiders’ transaction makes sense. Company executives and directors have in-depth knowledge of their own company’s operations – from their production pipeline to customer demands. Their certainty can be assessed by when and how much they buy. PMV’s insider meaningful buying activity tells us the shares are currently in favour, which is coherent with the positive growth in expected earnings, even if the low share price volatility did not warrant exploiting any mispricing.
Even though insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. For a better understanding of whether Premier Investments is a good investment, I recommend you look at our latest free analysis report on what really matters for PMV – the fundamentals.
PS. If you are not interested in Premier Investments anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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