athenahealth, Inc., together with its subsidiaries, provides network-based medical record, revenue cycle, patient engagement, care coordination, and population health services for medical groups and health systems. athenahealth is one of United States’s some insider buying over the past three months, with insiders investing in 7,200 shares during this period. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.
Which Insiders Are Buying?
There were more athenahealth insiders that have bought shares than those that have sold. In total, individual insiders own less than one million shares in the business, or around 1.42% of total shares outstanding. The insider that recently bought more shares is Jeffrey Immelt (board member) .
Is Future Growth Outlook As Bullish?
On the surface, analysts’ earnings growth projection of 144.90% over the next three years 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,athenahealth 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 is potentially an outcome of successful growth initiatives in place and strong cost controls, leading to sustainable operations. 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?
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. athenahealth’s shares ranged between $149.07 and $124.91 over the past three months. This suggests reasonable volatility with a change of 19.34%. Perhaps not a significant enough movement to warrant transactions, thus motivation may be a result of their belief in the company in the future or simply personal portfolio rebalancing.
athenahealth’s net buying tells us the stock is in favour with some insiders, coherent with the sizeable growth in expected earnings, although 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 compiled two relevant factors you should further examine:
- Financial Health: Does athenahealth 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 athenahealth? 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.