Why Are Insiders Pessimistic About Energy Fuels Inc’s (TSE:EFR) Stock?

Energy Fuels Inc., together with its subsidiaries, engages in the extraction, recovery, exploration, and sale of uranium in the United States. Energy Fuels is one of United States’s small-cap stocks that saw some insider selling over the past three months, with insiders divesting from 16.78k shares during this period. 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.

View our latest analysis for Energy Fuels

Who Are Selling Their Shares?

TSX:EFR Insider Trading August 10th 18
TSX:EFR Insider Trading August 10th 18

There were more Energy Fuels insiders that have sold shares than those that have bought. In total, individual insiders own over 1.26 million shares in the business, which makes up around 1.43% of total shares outstanding.

Insiders that have recently trimmed down their holdings are:
Name Management Board Total Annual Compensation
Dennis Higgs US$92.00k
The entity that sold on the open market in the last three months was Jones Ranch Minerals Unproven Ltd. Mesteña Unproven Ltd.. 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 Bearish?

TSX:EFR Future Profit August 10th 18
TSX:EFR Future Profit August 10th 18

At first glance, analysts’ revenue growth expectations of 78.36% over the next three years illustrates an optimistic 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, Energy Fuels is expected to experience a rather subdued top-line growth over the next year, however, earnings growth is expected to be strong at 10.68%. This may mean the company’s cost-cutting initiative will be significant enough to boost earnings. However, this exercise may not be viable over the long run which may prompt insiders to reconsider their shareholdings. Or else they may view the market has overvalued the stock, presenting a favourable environment to sell.

Did Stock Price Volatility Instigate Selling?

Alternatively, the timing of these insider transactions may have been driven by share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. In the past three months, Energy Fuels’s share price reached a high of CA$4.53 and a low of CA$2.37. This indicates meaningful movements in the share price with a change of 91.14%. This movement is meaningful enough to trade on if directors believe the market has mispriced their companies’ shares. Alternatively, they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.

Next Steps:

Energy Fuels’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, however, this is rather cautious relative to analysts’ earnings expectation, but the significant share price volatility could explain the trade. However it’s crucial to note that insider divesting may have nothing to do with their views on the company’s future performance. 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 fundamental aspects you should further examine:

  1. Financial Health: Does Energy Fuels 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 Energy Fuels? 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.