How Confident Are Insiders About Bega Cheese Limited (ASX:BGA)?
Bega Cheese Limited engages in receiving, processing, manufacturing, and distributing dairy and associated products primarily in Australia. Bega Cheese is one of Australia’s some insider buying over the past three months, with insiders investing in more than 3 million shares during this period. Generally, insiders buying more shares in their own firm sends a bullish 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. I’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.
See our latest analysis for Bega Cheese
Who Are Ramping Up Their Shares?
Over the past three months, more shares have been bought than sold by Bega Cheese’s’ insiders. In total, individual insiders own over 11 million shares in the business, which makes up around 5.76% of total shares outstanding. .
The entity that bought on the open market in the last three months was
Cooper Investors Pty Limited. 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.
Is Future Growth Outlook As Bullish?
Analysts’ expectations for earnings over the next 3 years of -54.91% provides poor outlook for the company, however, this is contrary to the signal company insiders are sending with their net buying activity. Digging deeper into the line items,Bega Cheese is believed to experience a double-digit top-line growth over the next year, which has not been passed down to earnings expectations given its large negative growth expectations. This could illustrate high levels of cost growth relative to revenue, which is typical during 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.
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. 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, Bega Cheese’s share price traded at a high of A$7.45 and a low of A$6.36. This suggests moderate volatility with a share price movement of 17.14%. 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:
Bega Cheese’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 essential factors you should look at:
Financial Health: Does Bega Cheese 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 Bega Cheese? 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.
