General Mills, Inc. manufactures and markets branded consumer foods worldwide. General Mills is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 7.27k shares during this period. It is widely considered that insider selling stock in their own companies is potentially a bearish signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. 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 The Insiders?
There were more General Mills insiders that have sold shares than those that have bought. In total, individual insiders own over 1.77 million shares in the business, which makes up around 0.30% of total shares outstanding.Insiders that have recently trimmed down their holdings are:
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Is Future Growth Outlook As Bearish?
On the surface, analysts’ earnings growth projection of -6.50% over the next three years provides negative outlook for the business, consistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, General Mills is expected to experience a rather subdued top-line growth over the next year, which impacts its earnings expectation resulting in a negative growth rate of -13.65%. This indicates cost growth has outstripped revenue which is unsustainable. Insiders’ net selling activity seems to bolster this negative sentiment. Otherwise, they may simply view the current share price is well-above the intrinsic value, providing a prime time to sell.
Did Insiders Sell On Share Price Volatility?
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. Within the past three months, General Mills’s share price traded at a high of $47.58 and a low of $41.77. This indicates a trivial share price movement, with a change of 13.91%. 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.
General Mills’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, reinforced by the negative earnings growth expectations, although the share price has not moved significantly to warrant reassessment of 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 compiled two important factors you should further examine:
- Financial Health: Does General Mills 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 General Mills? 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.