Who Just Ramped Up Their Shares In Mesoblast Limited (ASX:MSB)?
Mesoblast Limited develops cell-based medicines. Mesoblast is one of Australia’s small-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 15 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, it may not be sufficient to base your investment decision merely on these signals. I’ve analysed two possible reasons driving the insiders’ decision to ramp up their investment of late.
Check out our latest analysis for Mesoblast
Who Are Ramping Up Their Shares?
There were more Mesoblast insiders that have bought shares than those that have sold. In total, individual insiders own over 72 million shares in the business, which makes up around 15.4% of total shares outstanding. .
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.
Does Buying Activity Reflect Future Growth?
Analysts’ expectations for earnings over the next 3 years of -113.39% provides poor outlook for the company, however, this is contrary to the signal company insiders are sending with their net buying activity. Probing further into annual growth rates,Mesoblast is expected to experience an impressive double-digit top-line growth next year, which has not flown down into earnings expectations based on its big negative growth rate. This indicates high levels of cost growth compared to revenues, which is typical during a period of investment and growth in the company. This appears to be bolstered by directors’ confidence due to the net buying activities. 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. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. Within the past three months, Mesoblast’s share price traded at a high of A$1.95 and a low of A$1.22. This suggests meaningful movements in the share price with a change of 60.49%. This movement is meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.
Next Steps:
Mesoblast’s net buying tells us the stock is in favour with some insiders, although the expected earnings growth challenges this conclusion, whilst the volatile share price movement could be the incentive to transact. 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 relevant factors you should further examine:
Financial Health: Does Mesoblast 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 Mesoblast? 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.
