ENN Energy Holdings Limited, an investment holding company, engages in the investment in, construction, operation, and management of gas pipeline infrastructures, vehicle and ship refuelling stations, and integrated energy stations in the People’s Republic of China. ENN Energy Holdings’s insiders have invested more than 21.55 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.

See our latest analysis for ENN Energy Holdings

Which Insiders Are Buying?

There were more ENN Energy Holdings insiders that have bought shares than those that have sold. In total, individual insiders own . The entity that bought on the open market in the last three months was Capital Research and Management Company. 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 This Consistent With Future Growth?

On the surface, analysts’ earnings growth projection of 98.80% over the next three years provides a spectacular 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, ENN Energy Holdings is believed to experience a double-digit top-line growth over the next year, which seems to drive higher expected earnings growth as well. This may mean the company is reaping meaningful benefits from past growth initiatives, placing it in a beneficial position for future profits. If insiders recognised this, a signal of their confidence may be their higher shareholdings in the company. Or they may simply view the share price is currently too low compared to the share’s intrinsic value.

Did Insiders Buy On Share Price Volatility?

An alternative reason for recent trades could be insiders taking advantage of the 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. In the past three months, ENN Energy Holdings’s share price reached a high of HK$87.95 and a low of HK$70.45. This suggests reasonable volatility with a change of 24.84%. Insiders may deem this relatively meaningful movement as an opportunity to increase their shareholdings.

Next Steps:

ENN Energy Holdings’s net buying tells us the stock is in favour with some insiders, which is consistent with the significant expected earnings growth, though share price volatility was perhaps inconsequential to cash in on any 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 relevant aspects you should further examine:

1. Financial Health: Does ENN Energy Holdings 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 ENN Energy Holdings? 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.