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Aurobindo Pharma Limited engages in the research, development, manufacture, and sale of various pharmaceutical products in India. Aurobindo Pharma’s insiders have divested from 22.48k shares in the large-cap stock within the past three months. It is widely considered that insider selling stock in their own companies is potentially 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. But these signals may not be sufficient to gain confidence on whether to divest. I’ve analysed two possible reasons driving the insiders’ decision to reduce their investment of late.
View our latest analysis for Aurobindo Pharma
Which Insiders Are Selling?
Over the past three months, more shares have been sold than bought by Aurobindo Pharma’s insiders. In total, individual insiders own over 91.07 million shares in the business, which makes up around 15.54% of total shares outstanding.
Insiders that have recently trimmed down their holdings are .
Is Future Growth Outlook As Bearish?
On the surface, analysts’ earnings growth projection of 33.1% over the next three years provides a buoyant 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 healthy double-digit top-line growth next year, which is expected to drive an earnings growth rate of 12.9%. 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 Stock Price Volatility Instigate Selling?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook.
Within the past three months, Aurobindo Pharma’s share price traded at a high of ₹800.85 and a low of ₹567.85. This indicates a relatively high volatility with large change of 41.03%.
Insiders may deem this relatively meaningful movement as an opportunity to decrease their shareholdings. Or perhaps their reason to sell is not driven by price or growth prospects and merely by their own personal diversification or monetary needs.