Activision Blizzard, Inc. develops and distributes content and services on video game consoles, personal computers (PC), and mobile devices. Activision Blizzard is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 3.73k shares during this period. 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%. 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.
Who Are The Insiders?
Over the past three months, more shares have been sold than bought by Activision Blizzard’s insiders. In total, individual insiders own over 8.74 million shares in the business, which makes up around 1.15% of total shares outstanding.Insiders that have recently sold some of their shares are:
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Is Future Growth Outlook As Bearish?
Analysts’ expectations for earnings over the next 3 years of 328.93% provides a spectacular outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity. Delving deeper into the line items, analysts anticipate a restrained level of top-line growth over the next year, although a significantly greater rate of earnings growth. Generally, this difference can be explained by a large drop in cost growth. This may not be seen as a maintainable practice by insiders, who may expect a deterioration in earnings to reflect lower revenues growth in the future. Or they may merely view the stock as overvalued by the market which provides a suitable time to sell.
Did Insiders Sell On Share Price Volatility?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Activision Blizzard’s shares ranged between $81.5 and $68.93 over the past three months. This suggests some volatility with a share price change of of 18.24%. 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.
Activision Blizzard’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, though the positive growth in expected earnings tells us a different story, and the relatively stable stock price may not warrant exploiting 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. 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 key factors you should further research:
- Financial Health: Does Activision Blizzard 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 Activision Blizzard? 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 email@example.com.