Petroleum Geo-Services ASA, a marine geophysical company, provides a range of seismic and reservoir services worldwide. Petroleum Geo-Services is one of Norway’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from more than 20 million shares during this period. Generally, insiders selling shares in their own firm sends a bearish signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. But these signals may not be sufficient to gain confidence on whether to divest. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
Who Are Selling Their Shares?
More shares have been sold than bought by Petroleum Geo-Services’s insiders in the past three months. In total, individual insiders own less than one million shares in the business, or around 0.19% of total shares outstanding.The entity that sold on the open market in the last three months was Ferd AS. 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 This Consistent With Future Growth?
On the surface, analysts’ revenue growth projection of 28.6% over the next three years provides a satisfactory outlook for the company. However this is inconsistent with the signal company insiders are sending with their net selling activity. Delving deeper into the line items, Petroleum Geo-Services is expected to experience a restrained level of top-line growth over the next year, but a significantly higher expected earnings per share growth. This could indicate large cost-cutting initiatives by the company to boost its 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.
Can Share Price Volatility Explain The Sell?
An alternative reason for recent trades could be insiders taking advantage of the 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. In the past three months, Petroleum Geo-Services’s share price reached a high of NOK43.59 and a low of NOK34.22. This suggests reasonable volatility with a change of 27.38%. 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.
Petroleum Geo-Services’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. 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 key factors you should further research:
- Financial Health: Does Petroleum Geo-Services 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 Petroleum Geo-Services? 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.