American Homes 4 Rent (NYSE: AMH) is a leader in the single-family home rental industry and “American Homes 4 Rent” is fast becoming a nationally recognized brand for rental homes, known for high quality, good value and tenant satisfaction. American Homes 4 Rent is one of United States’s some insider buying over the past three months, with insiders investing in 807,295 shares during this period. Generally, insiders buying more shares in their own firm sends a bullish signal. The MIT Press (1998) published an article showing 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 will be analysing whether these buying activities are supported by favourable future outlook and recent share price volatility.
Who Are Ramping Up Their Shares?
Over the past three months, more shares have been bought than sold by American Homes 4 Rent’s’ insiders. In total, individual insiders own over 35 million shares in the business, which makes up around 10.34% of total shares outstanding. The insider that recently bought more shares is B. Hughes (board member) .
Is Future Growth Outlook As Bullish?
At a very high level, American Homes 4 Rent’s future looks hopeful. Probing further into annual growth rates,American Homes 4 Rent is believed to experience a strong double-digit revenue growth next year, which is expected to drive significant expected earnings growth as well. This may mean the company is reaping meaningful benefits from past growth initiatives, placing it in a beneficial position for future profits. Insiders’ conviction in this strong performance is illustrated by their ramp up in shareholdings. Or they may merely believe the stock is undervalued by the market relative to the growth potential it will deliver.
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. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. American Homes 4 Rent’s shares ranged between $22.32 and $18.73 over the past three months. This suggests reasonable volatility with a change of 19.17%. 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.
American Homes 4 Rent’s net buying tells us the stock is in favour with some insiders, which is consistent with the significant expected earnings growth, even if the low share price volatility did 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 relevant factors you should further research:
- 1. Financial Health: Does American Homes 4 Rent 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 American Homes 4 Rent? 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.