RingCentral, Inc. provides software-as-a-service solutions for business communications and collaboration primarily in the United States. RingCentral is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 8.79k 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 assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
Who Are Selling Their Shares?
Over the past three months, more shares have been sold than bought by RingCentral’s insiders. In total, individual insiders own over 10.65 million shares in the business, which makes up around 13.37% of total shares outstanding.Latest selling activities involved the following insiders:
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Does Selling Activity Reflect Future Growth?
At first glance, analysts’ earnings expectations of 38.68% over the next three years illustrates an upbeat 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, analysts anticipate a double-digit top-line growth over the next year, which appears to some extent fall through to its bottom-line growth of 1.21%. High levels of sustained revenue growth as well as improved cost management could see higher levels of future earnings. Insiders appear to believe in a continued negative outlook, signalled by their divesting activities. Or perhaps they view the stock as overvalued by the market’s optimistic sentiment which provides an opportune time to sell.
Did Stock Price Volatility Instigate Selling?
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. RingCentral’s shares ranged between $87.05 and $68.05 over the past three months. This indicates some volatility with a share price change of of 27.92%. 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.
RingCentral’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 movement may be too trivial 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. 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:
- Financial Health: Does RingCentral 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 RingCentral? 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.