AMETEK, Inc. manufactures and sells electronic instruments and electromechanical devices worldwide. AMETEK’s insiders have divested from 12.00k 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 two-decade research published in The MIT Press (1998) showed that stocks following insider selling declined 2.7% relative to the market. 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.
Who Are Selling Their Shares?
Over the past three months, more shares have been sold than bought by AMETEK’s insiders. In total, individual insiders own over 3.44 million shares in the business, which makes up around 1.48% of total shares outstanding.Insiders that have recently trimmed down their holdings are:
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Is This Consistent With Future Growth?
At first glance, analysts’ earnings expectations of 19.84% over the next three years illustrates a satisfactory outlook for the company. However this is inconsistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, AMETEK is believed to experience a restrained level of top-line growth over the next year, which appears to fall through into the bottom line with a growth rate of1.97%. Improved revenue growth combined with cost-efficiency initiatives could lead to even higher earnings growth going forward. Though, insiders net selling activity suggests a more pessimistic outlook for the company. Or they may merely view any growth potential is overly factored into the share price, providing a favourable time to divest.
Can Share Price Volatility Explain The Sell?
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. AMETEK’s shares ranged between $77.8 and $71.51 over the past three months. This suggests a trivial share price movement, with a change of 8.8%. This could indicate insider transactions are not driven by share price changes but perhaps they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
AMETEK’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, and the share price movement may be too trivial to cash in on 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 put together two relevant aspects you should further research:
- Financial Health: Does AMETEK 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 AMETEK? 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.