Why Did Cortex Business Solutions Inc’s (CVE:CBX) Insiders Sell Their Own Shares?

Cortex Business Solutions Inc. supplies e-commerce products and services in Canada and the United States. Cortex Business Solutions’s insiders have divested from 250.00k shares in the small-cap stock within the past three months. Generally, insiders selling shares in their own firm sends a bearish signal. A research published in The MIT Press (1998) concluded that stocks following insider selling fell 2.7% compared to the market. However, these signals may not be enough to gain conviction 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 Cortex Business Solutions

Who Are Selling Their Shares?

TSXV:CBX Insider Trading August 1st 18
TSXV:CBX Insider Trading August 1st 18
Over the past three months, more shares have been sold than bought by Cortex Business Solutions’s insiders. In total, individual insiders own over 1.26 million shares in the business, which makes up around 13.79% of total shares outstanding. The entity that sold on the open market in the last three months was Polar Asset Management Partners Inc.. 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?

TSXV:CBX Future Profit August 1st 18
TSXV:CBX Future Profit August 1st 18
At a very high level, Cortex Business Solutions’s future looks positive. Delving deeper into the line items, analysts anticipate a strong double-digit revenue growth next year, which is expected to drive significant expected earnings growth as well. This may mean the company is reaping meaningful benefits from past growth initiatives, placing it in a beneficial position for future profits. Yet insiders’ selling action seem to contradict this optimistic earnings outlook which means they may perceive things differently to the market. They may deem the high growth is not sustainable or positive sentiment has been overly factored into the stock price.

Did Insiders Sell 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. In the past three months, Cortex Business Solutions’s share price reached a high of CA$4.15 and a low of CA$3.6. This indicates some volatility with a share price change of of 15.28%. 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.

Next Steps:

Cortex Business Solutions’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, although the positive expected earnings growth challenges this assumption, 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 important factors you should further research:

  1. Financial Health: Does Cortex Business Solutions 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 Cortex Business Solutions? 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.