Why Are Insiders Cautious About Retail Opportunity Investments Corp’s (NASDAQ:ROIC) Shares?

Retail Opportunity Investments Corp. (NASDAQ: ROIC), is a fully-integrated, self-managed real estate investment trust (REIT) that specializes in the acquisition, ownership and management of grocery-anchored shopping centers located in densely-populated, metropolitan markets across the West Coast. Retail Opportunity Investments’s insiders have divested from 5.80k shares in the large-cap stock within the past three months. Generally, insiders selling shares in their own firm sends a bearish signal. A research published in The MIT Press (1998) concluded that stocks following insider selling fell 2.7% compared to the market. But these signals may not be sufficient to gain confidence on whether to divest. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares. Check out our latest analysis for Retail Opportunity Investments

Who Are The Insiders?

NasdaqGS:ROIC Insider_trading July 12th 18
NasdaqGS:ROIC Insider_trading July 12th 18
Over the past three months, more shares have been sold than bought by Retail Opportunity Investments’s insiders. In total, individual insiders own over 2.5 million shares in the business, which makes up around 2.01% of total shares outstanding. Insiders that have recently trimmed down their holdings are:
Name Management Board Total Annual Compensation
Charles Persico US$0174.98k

Is Future Growth Outlook As Bearish?

NasdaqGS:ROIC Future Profit July 12th 18
NasdaqGS:ROIC Future Profit July 12th 18
At first glance, analysts’ earnings expectations of 4.26% over the next three years illustrates a subdued outlook moving forward. Insiders may be more cautious than the market as signalled by their net selling activity. Probing further into annual growth rates, analysts anticipate a limited level of revenue growth next year, which seems to flow through to its earnings growth of 9.39%. Initiatives to drive the top-line as well as improved cost management could see higher levels of future earnings. However, insiders seem to have a cautious outlook of the company as evidenced by their net selling activities. Or they may simply view the current share price is well-above the intrinsic value, providing a prime time to sell.

Can Share Price Volatility Explain The Sell?

Alternatively, the timing of these insider transactions may have been driven by 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. Retail Opportunity Investments’s shares ranged between $19.52 and $16.31 over the past three months. This indicates moderate volatility with a share price movement of 19.68%. This may not be large enough to warrant any significant divesting, therefore the underlying driver may be the insiders’ belief of company growth prospects or simply their personal portfolio diversification needs.

Next Steps:

Retail Opportunity Investments’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, though the positive growth in expected earnings tells us a different story, and the relatively stable stock price may 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. there are two important aspects you should further examine:

  1. Financial Health: Does Retail Opportunity Investments 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.
  2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Retail Opportunity Investments? 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.