Should You Buy Ocwen Financial Corporation (NYSE:OCN) When Insiders Do?
Ocwen Financial Corporation, a financial services holding company, engages in the servicing and origination of mortgage loans in the United States. Ocwen Financial’s insiders have invested more than 2 million shares in the small-cap stocks within the past three months. 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%. 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.
Check out our latest analysis for Ocwen Financial
Who Are Ramping Up Their Shares?
More shares have been bought than sold by Ocwen Financial insiders in the past three months. In total, individual insiders own over 15 million shares in the business, which makes up around 11.53% of total shares outstanding. .
The entity that bought on the open market in the last three months was
Omega Advisors Inc.. 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, there are dark clouds on the horizon for Ocwen Financial. Delving deeper into the line items,Ocwen Financial is believed to experience negative growth in its top-line over the next year, which indicates the company may be facing some headwinds. This is expected to impact the bottom line with a growth of -19.91% next year, implying cost management may not be efficient enough to bring the company into a positive growth zone. Although, insiders seem to know something the market does not and have been ramping up their holdings in times of uncertainty. This indicates they may see a turnaround or deem the stock to be over-penalized by negative market sentiment.
Did Stock Price Volatility Instigate Buying?
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. In the past three months, Ocwen Financial’s share price reached a high of $3.73 and a low of $3.01. This indicates reasonable volatility with a change of 23.92%. This may not be large enough to warrant any significant purchases, therefore the underlying driver may be the insiders’ belief of company growth prospects or simply their personal portfolio rebalancing.
Next Steps:
Ocwen Financial’s net buying tells us the stock is in favour with some insiders, however, earnings expectations tell a different story, and 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. there are two key factors you should further research:
1. Financial Health: Does Ocwen Financial 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 Ocwen Financial? 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.
