Did Cara Operations Limited (TSE:CARA) Insiders Take Advantage Of Recent Price Volatility?
Cara Operations Limited operates and franchises full service restaurants. Cara Operations’s insiders have invested more than 3 million shares in the within the past three months. Generally, insiders buying more shares in their own firm sends 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 Cara Operations
Who Are The Insiders?
Over the past three months, more shares have been bought than sold by Cara Operations’s’ insiders. In total, individual insiders own over 1 million shares in the business, which makes up around 2.28% of total shares outstanding. .
The entity that bought on the open market in the last three months was
Fairfax Financial Holdings 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?
From the outside, Cara Operations’s future looks bright. Delving deeper into the line items,Cara Operations is expected to experience a sizeable revenue growth over the next year, which has not been passed down into earnings per share expectation given its negative growth of -14.65%. This indicates high levels of cost growth compared to revenues, which is typical during a period of investment and growth in the company.
Did Insiders Buy On Share Price Volatility?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Within the past three months, Cara Operations’s share price traded at a high of CA$27.38 and a low of CA$23.51. This indicates some volatility with a share price change of of 16.46%. 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:
Cara Operations’s insider meaningful buying activity tells us the shares are currently in favour, reinforced by the substantial earnings growth expectations, though share price volatility was perhaps inconsequential to cash in on 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 important factors you should further examine:
Financial Health: Does Cara Operations 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 Cara Operations? 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.
