Tempur Sealy International, Inc., together with its subsidiaries, develops, manufactures, markets, and distributes bedding products. Tempur Sealy International’s insiders have invested 688.80k shares in the large-cap stocks within the past three months. Generally, insiders buying more shares in their own firm sends a bullish signal. The MIT Press (1998) published an article showing that stocks following insider buying outperformed the market by 4.5%. However, these signals may not be enough to gain conviction on whether to invest. I will be analysing whether these buying activities are supported by favourable future outlook and recent share price volatility.
Who Are Ramping Up Their Shares?
More shares have been bought than sold by Tempur Sealy International insiders in the past three months. In total, individual insiders own less than one million shares in the business, or around 1.46% of total shares outstanding. The entity that bought on the open market in the last three months was H Partners Capital LLC. 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.
Does Buying Activity Reflect Future Growth?
At first glance, analysts’ earnings expectations of 78.46% over the next three years illustrates an upbeat outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items, analysts anticipate 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. Insider confidence in the company could be signalled by their net buying activity as they expect sustained growth moving forward. Or they may believe share price is below intrinsic value, offering an opportunity to buy.
Can Share Price Volatility Explain The Buy?An alternative reason for recent trades could be insiders taking advantage of the share price volatility. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. Tempur Sealy International’s shares ranged between $54.24 and $41.78 over the past three months. This indicates reasonable volatility with a change of 29.82%. Insiders may deem this relatively meaningful movement as an opportunity to increase their shareholdings.
Tempur Sealy International’s net buying tells us the stock is in favour with some insiders, reinforced by the substantial earnings growth expectations, though share price volatility was perhaps inconsequential to cash in on any mispricing. However, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve put together two essential aspects you should further research:
- Financial Health: Does Tempur Sealy International 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 Tempur Sealy International? 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.
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.