PTC Therapeutics, Inc., a biopharmaceutical company, focuses on the discovery, development, and commercialization of medicines for the treatment of rare disorders. Therapeutics’s insiders have divested from 5.16k 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. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. But these signals may not be sufficient to gain confidence on whether to divest. I’ve analysed two possible reasons driving the insiders’ decision to reduce their investment of late.
Who Are Selling Their Shares?
There were more Therapeutics 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 0.57% of total shares outstanding. Latest selling activities involved the following insiders:
|Name||Management||Board||Total Annual Compensation|
Does Selling Activity Reflect Future Growth?On the surface, analysts’ revenue growth projection of 106.26% over the next three years provides a fantastic outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity. Probing further into annual growth rates, analysts anticipate a healthy double-digit top-line growth next year, which appears to flow through to an earnings growth of 24.67%. This indicates some degree of economies of scale which may have a compounding impact in the future. However, company insiders appear to know something the market doesn’t and have been divesting from the stock. This may mean they believe the strong growth is hard to maintain or that positive sentiment has led to an over-pricing of the stock price.
Did Stock Price Volatility Instigate Selling?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. Therapeutics’s shares ranged between $47.88 and $25.76 over the past three months. This suggests a substantial share price volatility with a change of 85.87%. Insiders could perceive this meaningful movement as an opportunity to reduce their shareholdings. Or else, they may simply sell for their own portfolio diversification purposes or need cash for personal reasons.
Therapeutics’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, whereas a fairly volatile stock price could be a driver to transact. 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 look at:
- Financial Health: Does Therapeutics 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 Therapeutics? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!