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Should You Buy Benchmark Holdings plc (LON:BMK) When Insiders Do?

Peter Morris

Benchmark Holdings plc provides technical services, products, and specialist knowledge for the development of food and farming industries worldwide. Benchmark Holdings’s insiders have invested 125.00k shares in the small-cap stocks 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 analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.

See our latest analysis for Benchmark Holdings

Who Are The Insiders?

AIM:BMK Insider Trading September 10th 18

Over the past three months, more shares have been bought than sold by Benchmark Holdings’s’ insiders. In total, individual insiders own over 48.5 million shares in the business, which makes up around 8.7% of total shares outstanding.

The insider that recently bought more shares is Hugo Wahnish (board member) .

Is Future Growth Outlook As Bullish?

AIM:BMK Future Profit September 10th 18

At first glance, analysts’ earnings expectations of 56.6% over the next three years illustrates an upbeat outlook going forward which is consistent with the signal company insiders are sending with their net buying activity.

Digging deeper into the line items, analysts anticipate a strong double-digit revenue growth next year, which has not dropped down into the expected bottom-line due to its large negative growth rate. This means cost growth is anticipated to outstrip revenues, indicating a period of investment and growth in the company.

This appears to be bolstered by insiders’ net buying activities signalling their confidence. Or they may simply view the share price is currently too low compared to the share’s intrinsic value.

Can Share Price Volatility Explain The Buy?

Alternatively, the timing of these insider transactions may have been driven by 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.

Benchmark Holdings’s shares ranged between £0.65 and £0.56 over the past three months. This suggests reasonable volatility with a change of 15.04%.

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.

Next Steps:

Benchmark Holdings’s insider meaningful buying activity tells us the shares are currently in favour, although the expected earnings growth challenges this conclusion, and the relatively stable stock price may not warrant exploiting any 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 important factors you should look at:

  1. Financial Health: Does Benchmark Holdings 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 Benchmark Holdings? 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.