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Who Just Ramped Up Their Shares In WorleyParsons Limited (ASX:WOR)?

WorleyParsons Limited provides professional services to resources and energy sectors comprising hydrocarbons, minerals, metals, chemicals, and infrastructure. WorleyParsons’s insiders have invested more than 8.17 million shares in the large-cap stocks within the past three months. It is widely considered that insider buying stock in their own companies is potentially a bullish 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. I’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.

View our latest analysis for WorleyParsons

Which Insiders Are Buying?

ASX:WOR Insider Trading August 23rd 18
ASX:WOR Insider Trading August 23rd 18

Over the past three months, more shares have been bought than sold by WorleyParsons’s’ insiders. In total, individual insiders own over 10.19 million shares in the business, which makes up around 3.72% of total shares outstanding. . The entity that bought on the open market in the last three months was Dar Al-Handasah Consultants Shair and Partners Holdings Limited Sigma Asset Management (Guernsey) 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.

Is Future Growth Outlook As Bullish?

ASX:WOR Future Profit August 23rd 18
ASX:WOR Future Profit August 23rd 18

On the surface, analysts’ earnings growth projection of 576.93% 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, WorleyParsons is expected to experience a restrained level of top-line growth over the next year, although a significantly greater rate of earnings growth. This could indicate large cost-cutting initiatives by the company to boost its earnings. Net buying could signal high insider confidence, perhaps due to their belief of sustainable growth. Or they may simply see the current stock price is undervalued relative to intrinsic value.

Did Stock Price Volatility Instigate Buying?

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, WorleyParsons’s share price reached a high of A$18.89 and a low of A$16.08. This suggests some volatility with a share price change of of 17.48%. Insiders’ purchases may not be driven by this movement but perhaps their view of the company’s growth in the future or simply their individual portfolio rebalancing.

Next Steps:

WorleyParsons’s net buying tells us the stock is in favour with some insiders, coherent with the sizeable growth in expected earnings, even if the low share price volatility did not warrant exploiting 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 fundamental aspects you should further examine:

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  1. Financial Health: Does WorleyParsons 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 WorleyParsons? 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.