MBIA Inc. provides financial guarantee insurance services to public finance markets in the United States and internationally. MBIA is one of United States’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in 50,000 shares during this period. It is widely considered that insider buying stock in their own companies is potentially a bullish signal. The MIT Press (1998) published an article showing that stocks following insider buying outperformed the market by 4.5%. However, it may not be sufficient to base your investment decision merely on these signals. I’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.
Which Insiders Are Buying?
Over the past three months, more shares have been bought than sold by MBIA’s’ insiders. In total, individual insiders own over 6 million shares in the business, which makes up around 6.59% of total shares outstanding. The insider that recently bought more shares is Joseph Brown .
Is Future Growth Outlook As Bullish?
From the outside, MBIA’s future looks optimistic. Digging deeper into the line items,MBIA is expected to experience a large double-digit top-line growth over the next year, which seems to drive high expected earnings growth as well. This could indicate some degree of economies of scale which may have a compounding impact in the future. Insiders recognising these benefits as defensible may ramp up their holdings in the company. Or they may simply deem the company as undervalued by the market based on 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. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. MBIA’s shares ranged between $8.78 and $7.01 over the past three months. This suggests moderate volatility with a share price movement of 25.25%. 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.
MBIA’s insider meaningful buying activity tells us the shares are currently in favour, reinforced by the substantial earnings growth expectations, 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 key factors you should look at:
- Financial Health: Does MBIA 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 MBIA? 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.