Cosan Limited, together with its subsidiaries, engages in fuel and natural gas distribution, logistics, lubricant, sugar and ethanol businesses primarily in Brazil and internationally. Cosan’s insiders have invested more than 3.35 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. A two-decade research published in The MIT Press (1998) showed 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements. View out our latest analysis for Cosan
Who Are Ramping Up Their Shares?
More shares have been bought than sold by Cosan insiders in the past three months. In total, individual insiders own over 2.1 million shares in the business, which makes up around 0.86% of total shares outstanding.
Is Future Growth Outlook As Bullish?
Analysts’ expectations for earnings over the next 3 years of 208.65% provides a fantastic outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Probing further into annual growth rates, Cosan is expected to experience a sizeable revenue growth over the next year, which is expected to drive significant expected earnings growth as well. This may mean the company is reaping benefits from past growth initiatives, placing it in a beneficial position for future profits. If insiders believe these benefits are defensible, this could be a motivation for the net buying activity. Another reason could simply be they deem the shares under-priced given the growth potential the business could produce.
Did Insiders Buy On Share Price Volatility?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. 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, Cosan’s share price traded at a high of $11.21 and a low of $7.73. This suggests a fairly large volatility with a share price movement of 45.02%. This movement is potentially meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.
Cosan’s net buying tells us the stock is in favour with some insiders, coherent with the sizeable growth in expected earnings, and a fairly high volatility in share price over the same time period. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. there are two key aspects you should further examine:
- Financial Health: Does Cosan 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 Cosan? 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.