ALS Limited provides analytical testing services in Australia, Canada, the United States, and internationally. ALS’s insiders have divested from 30.00k shares in the large-cap stock within the past three months. It is widely considered that insider selling stock in their own companies is potentially a bearish signal. A research published in The MIT Press (1998) concluded that stocks following insider selling fell 2.7% compared to the market. But these signals may not be sufficient to gain confidence on whether to divest. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.
Which Insiders Are Selling?
More shares have been sold than bought by ALS’s insiders in the past three months. In total, individual insiders own less than one million shares in the business, or around 0.10% of total shares outstanding.The following insiders have recently reduced their company holdings:
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Does Selling Activity Reflect Future Growth?
At first glance, analysts’ earnings expectations of 232.83% over the next three years illustrates a spectacular outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity. Delving deeper into the line items, ALS is expected to experience a restrained level of top-line growth over the next year, but a suggestively greater level of expected earnings growth. This could indicate large cost-cutting initiatives by the company to boost its earnings. This may not be seen as a maintainable practice by insiders, who may expect a deterioration in earnings to reflect lower revenues growth in the future. Or they may merely view the stock as overvalued by the market which provides a suitable time to sell.
Can Share Price Volatility Explain The Sell?
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. ALS’s shares ranged between A$9.28 and A$7.29 over the past three months. This indicates reasonable volatility with a change of 27.39%. This may not be large enough to warrant any significant divesting, therefore the underlying driver may be the insiders’ belief of company growth prospects or simply their personal portfolio diversification needs.
ALS’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, though the positive growth in expected earnings tells us a different story, and the share price has not moved significantly to warrant reassessment of mispricing. However it’s crucial to note that insider divesting may have nothing to do with their views on the company’s future performance. Furthermore, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve compiled two essential factors you should further examine:
- Financial Health: Does ALS 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 ALS? 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 firstname.lastname@example.org.