U.S. Markets closed

Should You Follow This Trend For Luk Fook Holdings (International) Limited (HKG:590)?

Miguel Kauffman

Luk Fook Holdings (International) Limited, an investment holding company, engages in sourcing, designing, wholesaling, trademark licensing, and retailing various gold and platinum jewelry, and gem-set jewelry. Luk Fook Holdings (International) is one of Hong Kong’s large-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 3.41 million 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%. But these signals may not be sufficient to gain confidence on whether to invest. I’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.

View our latest analysis for Luk Fook Holdings (International)

Which Insiders Are Buying?

SEHK:590 Insider Trading September 17th 18

More shares have been bought than sold by Luk Fook Holdings (International) insiders in the past three months. In total, individual insiders own over 15.45 million shares in the business, which makes up around 2.63% of total shares outstanding.

Insiders that have recently bought more shares are: This statement is created if only one individual insider bought company shares in past 3 months . The entity that bought on the open market in the last three months was Colonial First State Asset Management (Australia) 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.

Is This Consistent With Future Growth?

SEHK:590 Future Profit September 17th 18

Analysts’ expectations for earnings over the next 3 years of 29.0% provides a good outlook for the company which is consistent with the signal company insiders are sending with their net buying activity.

Digging deeper into the line items, analysts anticipate a double-digit top-line growth over the next year, which seems to a certain degree, fall to the bottom line growth of 9.3%. High levels of sustained revenue growth as well as improved cost management could see higher levels of future earnings.

Insiders who believe in higher future growth could increase their shareholdings, signalling conviction in the company strategy. However, this net buying may simply reflect their views that the share price is well-below its intrinsic value.

Did Insiders Buy On Share Price Volatility?

Alternatively, the timing of these insider transactions may have been driven by share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value.

In the past three months, Luk Fook Holdings (International)’s share price reached a high of HK$34.95 and a low of HK$25.2. This indicates a fairly large volatility with a share price movement of 38.69%.

This movement is potentially meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.

Next Steps:

Luk Fook Holdings (International)’s net buying tells us the stock is in favour with some insiders, which is coherent with the positive growth in expected earnings, and a fairly high volatility in share price 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. there are two fundamental aspects you should further research:

  1. Financial Health: Does Luk Fook Holdings (International) 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 Luk Fook Holdings (International)? 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 editorial-team@simplywallst.com.