Adobe Systems Incorporated operates as a diversified software company worldwide. Adobe Systems's insiders have divested from 15.00k shares in the large-cap stock within the past three months. 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, it may not be sufficient to base your investment decision merely on these signals. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
View our latest analysis for Adobe Systems
Who Are Selling Their Shares?
More shares have been sold than bought by Adobe Systems's insiders in the past three months. In total, individual insiders own over 1.59 million shares in the business, which makes up around 0.32% of total shares outstanding.
The following insiders have recently reduced their company holdings:| Name | Management | Board | Total Annual Compensation |
|---|---|---|---|
| Bradley Rencher | ✔ | US$7.0m |
Is Future Growth Outlook As Bearish?
At first glance, analysts’ earnings expectations of 79.8% over the next three years illustrates a great outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity.
Digging deeper into the line items, Adobe Systems is expected to experience a strong double-digit revenue growth next year, which is expected to drive an earnings growth rate of 23.5%. Improved cost management and sustained high revenue growth could lead to higher earnings growth in the future.
Though this buoyant outlook is counter to insider selling activities, indicating they may know something the market does not. Insiders could see the double-digit growth as not sustainable or perhaps the positive sentiment has inflated the stock.Did Insiders Sell On Share Price Volatility?
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.
Within the past three months, Adobe Systems’s share price traded at a high of $274.69 and a low of $237.68. This suggests some volatility with a share price change of of 15.57%.
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:
Adobe Systems’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 share price has not moved significantly to warrant reassessment of mispricing. However it’s crucial to note that insider divesting may have nothing to do with their views on the company’s future performance. 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 important aspects you should further examine:
- Financial Health: Does Adobe Systems 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 Adobe Systems? 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.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.