Transocean Ltd., together with its subsidiaries, provides offshore contract drilling services for oil and gas wells worldwide. Transocean is one of Switzerland’s some insider buying over the past three months, with insiders investing in more than 2 million shares during this period. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic 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 analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.
Who Are The Insiders?
Over the past three months, more shares have been bought than sold by Transocean’s’ insiders. In total, individual insiders own over 34 million shares in the business, which makes up around 7.4% of total shares outstanding. The insider that recently bought more shares is Frederik Mohn .
Is This Consistent With Future Growth?
Analysts’ expectations for earnings over the next 3 years of 97.23% provides a very optimistic outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,Transocean is believed to experience a rather subdued top-line growth over the next year, but a significantly higher expected earnings growth. This could indicate large cost-cutting initiatives by the company to boost its 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?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. 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, Transocean’s share price traded at a high of $13.75 and a low of $9.11. This indicates a relatively high volatility with large change of 50.93%. Insiders may deem this relatively meaningful movement as an opportunity to increase their shareholdings.
Transocean’s insider meaningful buying activity tells us the shares are currently in favour, reinforced by the substantial earnings growth expectations, as well as the relatively large share price volatility over the same period of trade. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. there are two important aspects you should further research:
- Financial Health: Does Transocean 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 Transocean? 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.