CF Industries Holdings, Inc. manufactures and distributes nitrogen fertilizers and other nitrogen products worldwide. CF Industries Holdings’s insiders have divested from 2.00k shares in the large-cap stock within the past three months. 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%. However, these signals may not be enough to gain conviction on whether to divest. I’ve analysed two possible reasons driving the insiders’ decision to reduce their investment of late.
See our latest analysis for CF Industries Holdings
Which Insiders Are Selling?
Over the past three months, more shares have been sold than bought by CF Industries Holdings’s insiders. In total, individual insiders own over 1.16 million shares in the business, which makes up around 0.50% of total shares outstanding.
Insiders that have recently sold some of their shares are:| Name | Management | Board | Total Annual Compensation |
|---|---|---|---|
| Stephen Furbacher | ✔ | US$368.87k |
Is Future Growth Outlook As Bearish?
Analysts’ expectations for earnings over the next 3 years of 12.42% provides a decent 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, CF Industries Holdings is believed to experience a rather subdued top-line growth over the next year, and along with high cost growth, is expected to contribute to a highly negative expected earnings growth. Without proper cost controls, earnings could continue to exhibit large negative growth which is unmaintainable. Divestments by insiders appear to support this ongoing negative outlook. Or else they may merely view any growth potential is already factored into the share price, providing a favourable time to divest.
Can Share Price Volatility Explain The Sell?
Alternatively, the timing of these insider transactions may have been driven by 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. Within the past three months, CF Industries Holdings’s share price traded at a high of $49.75 and a low of $40.47. This indicates some volatility with a share price change of of 22.93%. Insiders’ purchases may not be driven by this movement but perhaps they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
Next Steps:
CF Industries Holdings’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, which is consistent with the significant expected earnings growth, 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 relevant aspects you should further research:
- Financial Health: Does CF Industries Holdings 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 CF Industries Holdings? 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 editorial-team@simplywallst.com.