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Should You Follow This Trend For Qantas Airways Limited (ASX:QAN)?

Audra Newberry

Qantas Airways Limited provides passenger and freight air transportation services in Australia and internationally. Qantas Airways’s insiders have invested more than 11.6 million shares in the large-cap stocks within the past three months. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic signal. The MIT Press (1998) published an article showing 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.

Check out our latest analysis for Qantas Airways

Which Insiders Are Buying?

ASX:QAN Insider Trading September 13th 18

There were more Qantas Airways insiders that have bought shares than those that have sold. In total, individual insiders own over 5.56 million shares in the business, which makes up around 0.38% of total shares outstanding.

The following insiders have recently increased their company holdings: Michael L’Estrange (board member) , Richard James Goyder (board member) , Alan Joyce (management and board member) and Belinda Hutchinson 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 AllianceBernstein L.P.. 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?

ASX:QAN Future Profit September 13th 18

At first glance, analysts’ earnings expectations of 12.6% over the next three years illustrates 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, Qantas Airways is believed to experience a limited level of revenue growth next year, which seems to trickle into the bottom line growth rate of 6.2%. Initiatives to drive the top-line as well as improved cost management could see higher levels of future earnings.

Insiders that believe the company could continue to deliver growth may have the incentive to increase their holdings.

Did Insiders Buy On Share Price Volatility?

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.

Within the past three months, Qantas Airways’s share price traded at a high of A$6.84 and a low of A$6.14. This suggests a relatively insignificant share price movement, with a small change of 11.41%.

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.

Next Steps:

Qantas Airways’s insider meaningful buying activity tells us the shares are currently in favour, which is relatively consistent with expected earnings growth, although the share price has not moved significantly to warrant reassessment of mispricing. 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 essential aspects you should look at:

  1. Financial Health: Does Qantas Airways 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 Qantas Airways? 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.