MEG Energy Corp., an oil sands company, focuses on sustainable in situ development and production in the southern Athabasca oil sands region of Alberta. MEG Energy’s insiders have divested from 71.63k shares in the large-cap stock within the past three months. A well-known argument is that insiders divesting from their own companies’ shares sends a pessimistic signal. A two-decade research published in The MIT Press (1998) showed that stocks following insider selling declined 2.7% relative to the market. However, it may not be sufficient to base your investment decision merely on these signals. I will be analysing whether these selling activities are supported by favourable future outlook and recent share price volatility.
Who Are Selling Their Shares?
There were more MEG Energy insiders that have sold shares than those that have bought. In total, individual insiders own over 2.57 million shares in the business, which makes up around 0.87% of total shares outstanding. Insiders that have recently trimmed down their holdings are:
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Is Future Growth Outlook As Bearish?At first glance, analysts’ earnings expectations of -69.55% over the next three years illustrates poor outlook for the company, consistent with the signal company insiders are sending with their net selling activity. Probing further into annual growth rates, MEG Energy is expected to experience a rather subdued top-line growth over the next year, which impacts its earnings expectation resulting in a highly negative growth rate. Without proper cost controls, earnings could continue to exhibit large negative growth which is unmaintainable. Selling activities by insiders seem to be consistent with this pessimistic future prospect. Or they may simply deem the current share price is well-above its intrinsic value, providing an opportune time to sell.
Can Share Price Volatility Explain The Sell?Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. MEG Energy’s shares ranged between CA$11.3 and CA$6.36 over the past three months. This suggests meaningful movements in the share price with a change of 77.67%. This meaningful movement could be a reason why insiders have decided to decrease their shareholdings. Or perhaps their reason to sell is not driven by price or growth prospects and merely by their own personal portfolio needs.
MEG Energy’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, which is consistent with the significant expected earnings growth, along with the high stock price volatility over the same time period. 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 MEG Energy 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 MEG Energy? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
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 email@example.com.