The Sherwin-Williams Company develops, manufactures, distributes, and sells paints, coatings, and related products to professional, industrial, commercial, and retail customers primarily in North and South America, the Caribbean, Europe, Asia, and Australia. Sherwin-Williams is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 8.45k shares during this period. Generally, insiders selling shares in their own firm sends a bearish 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, these signals may not be enough to gain conviction on whether to divest. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
View our latest analysis for Sherwin-Williams
Which Insiders Are Selling?
There were more Sherwin-Williams insiders that have sold shares than those that have bought. In total, individual insiders own less than one million shares in the business, or around 0.88% of total shares outstanding.
The following insiders have recently reduced their company holdings:| Name | Management | Board | Total Annual Compensation |
|---|---|---|---|
| Susan Kropf | ✔ | US$281.2k | |
| Joel Baxter | ✔ | US$2.5m | |
| Peter Ippolito | ✔ | ||
| Jane Cronin | ✔ | ||
| Robert Wells | ✔ | ||
| David Hodnik | ✔ | US$281.2k |
Is Future Growth Outlook As Bearish?
Analysts’ expectations for earnings over the next 3 years of 13.3% provides a positive 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, Sherwin-Williams is believed to experience a restrained level of top-line growth over the next year, which impacts its earnings expectation resulting in a negative growth rate of -11.6%. This illustrates that cost growth has exceeded top-line, leading to an unsustainable decline in earnings.
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 Stock Price Volatility Instigate Selling?
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.
In the past three months, Sherwin-Williams’s share price reached a high of $477.98 and a low of $394.95. This suggests reasonable volatility with a change of 21.02%.
Perhaps not a significant enough movement to warrant transactions, thus motivation may be a result of their belief in the company in the future or simply personal needs.Next Steps:
Sherwin-Williams’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, reinforced by the negative earnings growth expectations, though share price volatility was perhaps inconsequential to cash in on any mispricing. However, it’s important to keep in mind, insider selling may not necessarily be based on their belief of the company’s ability to perform in the future. Furthermore, 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 relevant factors you should further examine:
- Financial Health: Does Sherwin-Williams 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 Sherwin-Williams? 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.