How Confident Are Insiders About Crown Resorts Limited (ASX:CWN)?
Crown Resorts Limited’s’ (ASX:CWN) is one of Australia’s large-cap stocks operating in the AU Hospitality industry. Crown Resorts saw some insider buying over the past three months, with insiders investing in more than 10 million shares during this period. It is widely considered that insider buying stock in their own companies is potentially 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 assessed two potential reasons behind the insiders’ latest motivation to buy more shares.
View our latest analysis for Crown Resorts
Who Are The Insiders?
There were more Crown Resorts insiders that have bought shares than those that have sold. In total, individual insiders own over 1 million shares in the business, which makes up around 0.18% of total shares outstanding. .
The entity that bought on the open market in the last three months was
Schroder Investment Management (Hong Kong) Limited Schroder Investment Management (Singapore) Ltd Schroder Investment Management 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.
Does Buying Activity Reflect Future Growth?
Analysts’ expectations for earnings over the next 3 years of -76.67% provides poor outlook for the company, however, this is contrary to the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,Crown Resorts is expected to experience a rather subdued top-line growth over the next year, which impacts its earnings expectation resulting in a highly negative growth rate. 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.
Can Share Price Volatility Explain The Buy?
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. Within the past three months, Crown Resorts’s share price traded at a high of A$13.1 and a low of A$11.47. This indicates a relatively insignificant share price movement, with a small change of 14.21%. This could indicate insider transactions are not driven by share price changes but perhaps due to their belief of the company’s growth prospects or just personal portfolio re-weighting.
Next Steps:
Crown Resorts’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 essential aspects you should further research:
1. Financial Health: Does Crown Resorts 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 Crown Resorts? 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.
