‘Cluster buying’ is a particularly strong insider buying signal. This is where multiple insiders are purchasing company stock within a short space of time.
In this report, we are going to flag some recent cluster buying at Essity Aktiebolag (ESSITYB:SS). Essity is a global hygiene and health company that sells products in around 150 countries worldwide. It’s listed on the Stockholm Stock Exchange and currently has a market capitalization of SEK 185 billion.
Essity: insider buying
Essity’s share price has fallen recently, and what’s interesting is that a number of insiders have subsequently purchased shares in order to take advantage of the share price weakness. Our records show that since 22 October, eight insiders at Essity have purchased stock. Those buying have included President/CEO Magnus Groth, CFO Fredrik Rystedt, and Chairman Par Boman.
Source: 2iQ Research
This pattern of insider buying looks quite bullish, in our view. The fact that eight different insiders have purchased stock within just a few days shows that there is a strong consensus of opinion that the stock is undervalued after its recent fall.
It’s also very encouraging that a number of top-level insiders such as the CEO, CFO, and Chairman have purchased stock. These insiders are likely to have deep insight into the company’s operations and future prospects.
Mixed Q3 resultsEssity posted a mixed set of third-quarter results on 22 October. For the nine-month period to the end of September, sales were down 4.7% to SEK 90,796 million due to Covid-19. However, operating profit before amortization of acquisition-related intangible assets (EBITA) for the period was up 27% to SEK 13,177 million while adjusted earnings per share were up 9% to SEK 11.50. A dividend of SEK 6.25 was proposed – 9% higher than the dividend for the same period last year.
Essity advised in the Q3 results that its digital transformation will accelerate in the years ahead through a new digital platform. This will further strengthen the group’s customer and consumer offerings, generate significant cost savings, and reduce the need for working capital. A positive sales and earnings impact is expected gradually from 2022.
In light of this outlook, we view the insider buying here as a bullish signal. It appears that insiders see the recent share price weakness as a buying opportunity.