Yahoo Finance Did Insiders Buy On Exco Technologies Limited’s (TSE:XTC) Price Volatility?
Exco Technologies Limited, together with its subsidiaries, designs, develops, manufactures, and sells dies, molds, components and assemblies, and consumable equipment for the die-cast, extrusion, and automotive industries. Exco Technologies is one of Canada’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in 261,800 shares during this period. Generally, insiders buying more shares in their own firm sends a bullish signal. The MIT Press (1998) published an article showing 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.
See our latest analysis for Exco Technologies
Who Are The Insiders?
More shares have been bought than sold by Exco Technologies insiders in the past three months. In total, individual insiders own over 11 million shares in the business, which makes up around 27.02% of total shares outstanding. .
The entity that bought on the open market in the last three months was
Kernwood 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?
On the surface, analysts’ earnings growth projection of 55.11% over the next three years provides an optimistic outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,Exco Technologies is believed to experience a limited level of revenue growth next year, but a double-digit earnings growth at 19.59%. This may mean the company has effectively managed costs in order to pump up earnings growth. Insiders ramping up shares could gesture confidence in sustainable growth rates. Or they may merely see a buying opportunity due to undervaluation at the current share price.
Did Stock Price Volatility Instigate Buying?
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, Exco Technologies’s share price traded at a high of CA$10.1 and a low of CA$9.01. This suggests an immaterial change in share price, with a movement of 12.1%. 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:
Exco Technologies’s insider meaningful buying activity tells us the shares are currently in favour, which is fairly consistent with earnings growth expectations, although the share price has not moved significantly to warrant reassessment of mispricing. However, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve compiled two key aspects you should further examine:
Financial Health: Does Exco Technologies 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.
Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Exco Technologies? 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.
