Yahoo Finance How Confident Are Insiders About Cash Converters International Limited (ASX:CCV)?
Cash Converters International Limited operates as a franchisor of second hand goods and financial services stores under the Cash Converters brand name. Cash Converters International is one of Australia’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 2 million shares during this period. 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 our latest analysis for Cash Converters International
Who Are The Insiders?
More shares have been bought than sold by Cash Converters International insiders in the past three months. In total, individual insiders own over 20 million shares in the business, which makes up around 3.96% of total shares outstanding. .
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.
Does Buying Activity Reflect Future Growth?
Analysts’ expectations for earnings over the next 3 years of 86.28% provides an exceptional outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items,Cash Converters International is expected to experience a healthy double-digit top-line growth next year, which appears to flow through to an earnings growth of 22.14%. Improved cost management and sustained high revenue growth could lead to higher earnings growth in the future. If insiders recognised this, a signal of confidence may be in their net buying activity. Another reason for the timing of recent share acquisitions could be if they believe the stock is below its intrinsic value, which could be another motivation to buy now.
Can Share Price Volatility Explain The Buy?
An alternative reason for recent trades could be insiders taking advantage of the share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Cash Converters International’s shares ranged between A$0.41 and A$0.35 over the past three months. This indicates reasonable volatility with a change of 18.84%. 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:
Cash Converters International’s insider meaningful buying activity tells us the shares are currently in favour, which is coherent with the positive growth in expected earnings, even if the low share price volatility did not warrant exploiting any mispricing. Although insider buying can be a useful prompt, following the lead of an insider, however, will never replace diligent research. there are two essential factors you should further research:
Financial Health: Does Cash Converters 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.
Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Cash Converters 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 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.
