EVRAZ plc, together with its subsidiaries, produces and distributes steel and related products. EVRAZ is one of Russia’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 69.00k shares during this period. A well-known argument is that insiders divesting from their own companies’ shares sends a pessimistic signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. However, it may not be sufficient to base your investment decision merely on these signals. I’ve analysed two possible reasons driving the insiders’ decision to reduce their investment of late.
Which Insiders Are Selling?
There were more EVRAZ insiders that have sold shares than those that have bought. In total, individual insiders own over 117.39 million shares in the business, which makes up around 8.13% of total shares outstanding.The following insiders have recently reduced their company holdings:
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Does Selling Activity Reflect Future Growth?
Analysts’ expectations for earnings over the next 3 years of 46.50% provides a buoyant outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity. Probing further into annual growth rates, EVRAZ is believed to experience a rather subdued top-line growth over the next year, but a significantly higher expected earnings growth. Generally, this difference can be explained by a large drop in cost growth. However, insiders may recognise this is not a sustainable practice and this negative sentiment is evidenced by their net selling activity. Or they may simply view the current share price is well-above the intrinsic value, providing a prime time to sell.
Did Stock Price Volatility Instigate Selling?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. Within the past three months, EVRAZ’s share price traded at a high of £5.57 and a low of £4.53. This indicates some volatility with a share price change of of 23.07%. Insiders’ purchases may not be driven by this movement but perhaps they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
EVRAZ’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 relatively stable stock price may not warrant exploiting any mispricing. However, it’s important to keep in mind, insider selling may not necessarily be based on their belief of the company’s ability to perform in the future. Furthermore, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. there are two relevant aspects you should look at:
- Financial Health: Does EVRAZ 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 EVRAZ? 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.