Mindtree Limited provides digital transformation and technology services in India, the United States, Canada, Continental Europe, the United Kingdom, the Asia Pacific, and internationally. Mindtree’s insiders have divested from 25.02k 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.
See our latest analysis for Mindtree
Who Are Selling Their Shares?
There were more Mindtree insiders that have sold shares than those that have bought. In total, individual insiders own over 34.47 million shares in the business, which makes up around 21% of total shares outstanding. Insiders that have recently trimmed down their holdings are Anil Rao (management) , Erwan Carpentier (management) , Manas Chakraborty and Srinivasa Vezzu .
Is Future Growth Outlook As Bearish?
Analysts’ expectations for earnings over the next 3 years of 55.2% provides a strong 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, Mindtree is expected to experience a healthy double-digit top-line growth next year, which is expected to drive an earnings growth rate of 23.6%. 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?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. In the past three months, Mindtree’s share price reached a high of ₹1081 and a low of ₹915.5. This indicates moderate volatility with a share price movement of 18.08%. 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.