Twitter, Inc. operates as a platform for public self-expression and conversation in real time. Twitter is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 7.31k shares during this period. A well-known argument is that insiders divesting from their own companies’ shares sends a pessimistic 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, these signals may not be enough to gain conviction on whether to divest. I will be analysing whether these selling activities are supported by favourable future outlook and recent share price volatility.
Who Are The Insiders?
Over the past three months, more shares have been sold than bought by Twitter’s insiders. In total, individual insiders own over 71.92 million shares in the business, which makes up around 9.53% of total shares outstanding.Insiders that have recently trimmed down their holdings are:
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Is Future Growth Outlook As Bearish?
Analysts’ expectations for earnings over the next 3 years of 89.5% provides an exceptional 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 is expected to drive an earnings growth rate of 27.1%. This indicates some degree of economies of scale which may have a compounding impact in the future. But this positive outlook is not supported by insiders’ selling activities which may mean they see things differently to the current optimistic situation. Insiders may feel the growth is unsustainable or the market has significantly overvalued the stock.
Can Share Price Volatility Explain The Sell?
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. Twitter’s shares ranged between $46.76 and $31.38 over the past three months. This indicates reasonably high share price volatility with a change of 49.01%. This movement could potentially be significant enough to warrant directors to trade their shares. Alternatively, they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
Twitter’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 highly volatile share price could be the driver to sell. But we must also be aware that insiders divesting may not actually be based their views on the company’s outlook. Furthermore, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. there are two key aspects you should look at:
- Financial Health: Does Twitter 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 Twitter? 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 firstname.lastname@example.org.