Pareto Bank ASA provides various financial products and services in Norway. Pareto Bank’s insiders have divested from 21.89k 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 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.
Who Are The Insiders?
There were more Pareto Bank insiders that have sold shares than those that have bought. In total, individual insiders own over 2.88 million shares in the business, which makes up around 4.92% of total shares outstanding.Insiders that have recently sold some of their shares are:
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Is Future Growth Outlook As Bearish?
At first glance, analysts’ earnings expectations of 6.65% over the next three years illustrates a subdued outlook moving forward. Insiders may be more cautious than the market as signalled by their net selling activity. Probing further into annual growth rates, Pareto Bank is expected to experience a restrained level of top-line growth over the next year, which appears to negatively affect earnings growth given the expected rate of -0.92%. This indicates cost growth has outstripped revenue which is unsustainable. 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.
Did Stock Price Volatility Instigate Selling?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. Pareto Bank’s shares ranged between NOK40.8 and NOK37.4 over the past three months. This indicates a trivial share price movement, with a change of 9.09%. This may mean insiders’ motivation to trade may not be driven by the share price but rather other factors such as their belief in company growth or their personal portfolio diversification needs.
Pareto Bank’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, reinforced by the negative earnings growth expectations, even if the low share price volatility did not warrant exploiting any mispricing. 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 compiled two essential aspects you should further research:
- Financial Health: Does Pareto Bank 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 Pareto Bank? 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 email@example.com.