Should You Buy Unifi Inc (NYSE:UFI) When Insiders Do?
Unifi, Inc., together with its subsidiaries, manufactures and sells polyester and nylon yarns. Unifi is one of United States’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in 963.46k shares during this period. Generally, insiders buying more shares in their own firm sends a bullish signal. A two-decade research published in The MIT Press (1998) showed 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. Check out our latest analysis for Unifi
Who Are Ramping Up Their Shares?
More shares have been bought than sold by Unifi insiders in the past three months. In total, individual insiders own over 1.27 million shares in the business, which makes up around 6.94% of total shares outstanding.
Does Buying Activity Reflect Future Growth?
Analysts’ expectations for revenue growth over the next 3 years of 13.45% provides a subdued outlook moving forward, however, insiders may be more optimistic than the market, with their net buying activity. Probing further into annual growth rates, Unifi is believed to experience a restrained level of top-line growth over the next year, which impacts its earnings expectation resulting in a negative growth rate of -0.72%. This indicates cost growth has outstripped revenue which is unsustainable. Although insiders may see prosperous times ahead given the current investment period, leading to their conviction to buy. Or else they may simply deem the stock to be undervalued by the negative sentiment.
Did Stock Price Volatility Instigate Buying?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Within the past three months, Unifi’s share price traded at a high of $38.1 and a low of $29.61. This suggests moderate volatility with a share price movement of 28.67%. Insiders’ purchases may not be driven by this movement but perhaps their view of the company’s growth in the future or simply their individual portfolio rebalancing.
Next Steps:
Unifi’s insider meaningful buying activity tells us the shares are currently in favour, though negative growth in expected earnings contests this assumption, 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 relevant factors you should look at:
Financial Health: Does Unifi 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 Unifi? 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.
