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Should You Follow This Trend For Lonestar Resources US Inc (NASDAQ:LONE)?

Austin Wood

Lonestar Resources US Inc., an independent oil and gas company, engages in the acquisition, development, and production of unconventional oil, natural gas liquids, and natural gas properties in the United States. Lonestar Resources US is one of United States’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in 61.77k 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, 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 out our latest analysis for Lonestar Resources US

Who Are Ramping Up Their Shares?

NasdaqGM:LONE Insider_trading June 26th 18
NasdaqGM:LONE Insider_trading June 26th 18

Over the past three months, more shares have been bought than sold by Lonestar Resources US’s’ insiders. In total, individual insiders own less than one million shares in the business, or around 2.76% of total shares outstanding.

Is Future Growth Outlook As Bullish?

NasdaqGM:LONE Future Profit June 26th 18
NasdaqGM:LONE Future Profit June 26th 18

At first sight, Lonestar Resources US’s future looks very positive. Probing further into annual growth rates, Lonestar Resources US is believed to experience an impressive double-digit top-line growth next year, which appears to flow through to large earnings growth expectations. This is potentially an outcome of successful growth initiatives in place and strong cost controls, leading to sustainable operations. Insiders’ conviction in this strong performance is signalled by their net buying activity. Or perhaps they merely see the stock 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. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. Lonestar Resources US’s shares ranged between $8.55 and $3.74 over the past three months. This suggests a substantial share price volatility with a change of 128.61%. This movement is meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.

Next Steps:

Lonestar Resources US’s net buying tells us the stock is in favour with some insiders, which is consistent with the significant expected earnings growth, along with the high stock price volatility over the same time period. 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 relevant aspects you should look at:

  1. Financial Health: Does Lonestar Resources US 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 Lonestar Resources US? 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.