Nexeo Solutions, Inc. operates as a chemical and plastic products distributor in North America, Europe, the Middle East, Africa, and Asia. Nexeo Solutions is one of United States’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in 425.27k 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, these signals may not be enough to gain conviction on whether to invest. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.
Who Are Ramping Up Their Shares?
Over the past three months, more shares have been bought than sold by Nexeo Solutions’s’ insiders. In total, individual insiders own less than one million shares in the business, or around 0.61% of total shares outstanding. . The entity that bought on the open market in the last three months was Legion Partners Asset Management LLC. 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 92.2% provides an exceptional outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates, Nexeo Solutions is expected to experience a restrained level of top-line growth over the next year, but a double-digit earnings growth at 19.8%. This may mean the company has effectively managed costs in order to pump up earnings growth. Insider confidence in the company could be signalled by their net buying activity as they expect sustained growth moving forward. Or they may believe share price is below intrinsic value, offering an opportunity to buy.
Did Stock Price Volatility Instigate Buying?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. 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, Nexeo Solutions’s share price reached a high of $10.15 and a low of $8.7. This suggests moderate volatility with a share price movement of 16.67%. 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.
Nexeo Solutions’s insider meaningful buying activity tells us the shares are currently in favour, which is coherent with the positive growth in expected earnings, even if the low share price volatility did not warrant exploiting any mispricing. However, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve put together two important factors you should further examine:
- Financial Health: Does Nexeo Solutions 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 Nexeo Solutions? 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 past 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. For errors that warrant correction please contact the editor at email@example.com.