QANTM Intellectual Property Limited providing IP services for start-up technology businesses, multinationals, public research institutions, and universities in Australia and internationally. Qantm Intellectual Property’s insiders have divested from more than 3.13 million shares in the small-cap stock within the past three months. It is widely considered that insider selling stock in their own companies is potentially a bearish signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. However, these signals may not be enough to gain conviction on whether to divest. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
Which Insiders Are Selling?
Over the past three months, more shares have been sold than bought by Qantm Intellectual Property’s insiders. In total, individual insiders own over 21 million shares in the business, which makes up around 15.8% of total shares outstanding.The entity that sold on the open market in the last three months was Investors Mutual Limited Perpetual 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 Selling Activity Reflect Future Growth?
Analysts’ expectations for earnings over the next 3 years of 68.09% provides a great outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, Qantm Intellectual Property is believed to experience a restrained level of top-line growth over the next year, which appears to fall through into the bottom line with a growth rate of8.26%. Improved revenue growth combined with cost-efficiency initiatives could lead to even higher earnings growth going forward. However, insiders seem to have a cautious outlook of the company as evidenced by their net selling activities. Or they may simply view the current share price is well-above the intrinsic value, providing a prime time to sell.
Did Insiders Sell On Share Price Volatility?
Alternatively, the timing of these insider transactions may have been driven by 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. Within the past three months, Qantm Intellectual Property’s share price traded at a high of A$1.33 and a low of A$1.05. This indicates some volatility with a share price change of of 27.27%. 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.
Qantm Intellectual Property’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, however, this is rather cautious relative to analysts’ earnings expectation, and the share price has not moved significantly to warrant reassessment of mispricing. But we must also be aware that insiders divesting may not actually be based their views on the company’s outlook. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve put together two relevant factors you should look at:
- Financial Health: Does Qantm Intellectual Property 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 Qantm Intellectual Property? 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.