Bendigo and Adelaide Bank Limited provides banking and financial services in Australia. Bendigo and Adelaide Bank’s insiders have invested more than 1.27 million shares in the large-cap stocks within the past three months. 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 analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.
Which Insiders Are Buying?
Over the past three months, more shares have been bought than sold by Bendigo and Adelaide Bank’s’ insiders. In total, individual insiders own over 1.51 million shares in the business, which makes up around 0.31% of total shares outstanding. . The entity that bought on the open market in the last three months was The Vanguard Group Inc.. 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.
Does Buying Activity Reflect Future Growth?
At first glance, analysts’ earnings expectations of -9.48% over the next three years illustrates negative outlook for the business, however, this is contrary to the signal company insiders are sending with their net buying activity. Delving deeper into the line items, analysts anticipate a rather subdued top-line growth over the next year, which impacts its earnings expectation resulting in a negative growth rate of -0.34%. This indicates cost growth has outstripped revenue which is unsustainable. Although insiders may see prosperous times ahead given the current investment period, leading to their conviction to buy. Or else they may simply deem the stock to be undervalued by the negative sentiment.
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. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Within the past three months, Bendigo and Adelaide Bank’s share price traded at a high of A$11.71 and a low of A$10.03. This indicates some volatility with a share price change of of 16.7%. This may not be large enough to warrant any significant purchases, therefore the underlying driver may be the insiders’ belief of company growth prospects or simply their personal portfolio rebalancing.
Bendigo and Adelaide Bank’s insider meaningful buying activity tells us the shares are currently in favour, however, earnings expectations tell a different story, and the relatively stable stock price may 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 research:
- Financial Health: Does Bendigo and Adelaide Bank 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 Bendigo and Adelaide Bank? 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 firstname.lastname@example.org.