Just Dial Limited engages in the search engine business under the Justdial brand name in India and internationally. Just Dial is one of India’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 31.27k 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, it may not be sufficient to base your investment decision merely on these signals. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.

Check out our latest analysis for Just Dial

Who Are The Insiders?

There were more Just Dial insiders that have sold shares than those that have bought. In total, individual insiders own over 22.9 million shares in the business, which makes up around 33.97% of total shares outstanding. Insiders that have recently trimmed down their holdings are Ajay Mohan , Sanjay Bahadur (management and board member) and V. Krishnan (board member) .

Is This Consistent With Future Growth?

At first glance, analysts’ earnings expectations of 61.72% over the next three years illustrates an optimistic outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity. Probing further into annual growth rates, Just Dial is expected to experience a double-digit top-line growth over the next year, which is expected to drive an earnings growth rate of 17.23%. This indicates some degree of economies of scale which may have a compounding impact in the future. However, company insiders appear to know something the market doesn’t and have been divesting from the stock. This may mean they believe the strong growth is hard to maintain or that positive sentiment has led to an over-pricing of the stock price.

Can Share Price Volatility Explain The Sell?

An alternative reason for recent trades could be insiders taking advantage of the share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. In the past three months, Just Dial’s share price reached a high of ₹608.4 and a low of ₹407.1. This suggests a fairly large volatility with a share price movement of 49.45%. 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.

Next Steps:

Just Dial’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, but the relatively large share price volatility could explain the trade. But we must also be aware that insiders divesting may not actually be based their views on the company’s outlook. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve put together two fundamental aspects you should further examine:

1. Financial Health: Does Just Dial 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.

2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Just Dial? 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.