Dunelm Group plc engages in the retail of homewares in the United Kingdom. Dunelm Group’s insiders have invested 53,792 shares in the within the past three months. 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, it may not be sufficient to base your investment decision merely on these signals. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.
Which Insiders Are Buying?
There were more Dunelm Group insiders that have bought shares than those that have sold. In total, individual insiders own over 67 million shares in the business, which makes up around 33.23% of total shares outstanding. Latest buying activities involved the following insiders: Andrew Harrison (board member) , Keith Down (management and board member) and William Reeve (board member) .
Does Buying Activity Reflect Future Growth?
On the surface, analysts’ earnings growth projection of 50.40% over the next three years provides a great outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Digging deeper into the line items,Dunelm Group is believed to experience a limited level of revenue growth next year, but a significantly higher expected earnings growth. Usually this discrepancy can be explained by an equally significant drop in costs. Insiders ramping up shares could gesture confidence in sustainable growth rates. Or they may merely see a buying opportunity due to undervaluation at the current share price.
Can Share Price Volatility Explain The Buy?
An alternative reason for recent trades could be insiders taking advantage of the 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, Dunelm Group’s share price traded at a high of £6.52 and a low of £5.06. This suggests reasonable volatility with a change of 28.88%. 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.
Dunelm Group’s net buying tells us the stock is in favour with some insiders, coherent with the sizeable growth in expected earnings, though share price volatility was perhaps inconsequential to cash in on any mispricing. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve compiled two fundamental aspects you should look at:
- Financial Health: Does Dunelm Group 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 Dunelm Group? 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.