Polarcus Limited, a marine geophysical company, provides marine seismic data acquisition and processing services to oil and gas companies in the Asia Pacific, Europe, Africa, the Middle East, and North and South America. Polarcus’s insiders have divested from more than 2.44 million 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. 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?
Over the past three months, more shares have been sold than bought by Polarcus’s insiders. In total, individual insiders own over 50.8 million shares in the business, which makes up around 9.89% of total shares outstanding. Latest selling activities involved the following insiders:
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Does Selling Activity Reflect Future Growth?At first glance, Polarcus’s future looks positive. Delving deeper into the line items, analysts anticipate a double-digit top-line growth over the next year, which appears to flow through to larger earnings growth expectations. This could indicate significant cost-cutting activities or a high degree of economies of scale which may have a compounding impact in the future. Insider net selling activity is counter to what we’d expect given a significantly positive earnings outlook, indicating they may know something the market does not. Insiders could perceive the high growth as unsustainable or that it has been excessively factored into the current share price.
Did Stock Price Volatility Instigate Selling?Alternatively, the timing of these insider transactions may have been driven by share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Within the past three months, Polarcus’s share price traded at a high of NOK2.85 and a low of NOK1.58. This indicates a substantial share price volatility with a change of 79.84%. 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.
Polarcus’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, however, this is rather cautious relative to analysts’ earnings expectation, but the significant share price volatility could explain the trade. 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 examine:
- Financial Health: Does Polarcus 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 Polarcus? 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.
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