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ALS Limited provides analytical testing services in Australia, Canada, the United States, and internationally. ALS is one of Australia’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 30.00k shares during this period. A well-known argument is that insiders divesting from their own companies’ shares sends a pessimistic signal. A research published in The MIT Press (1998) concluded that stocks following insider selling fell 2.7% compared 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.
See our latest analysis for ALS
Which Insiders Are Selling?
Over the past three months, more shares have been sold than bought by ALS’s insiders. In total, individual insiders own less than one million shares in the business, or around 0.10% of total shares outstanding. The insider that recently sold more shares is Charles Sartain (board member) .
Is This Consistent With Future Growth?
On the surface, analysts’ earnings growth projection of 233% over the next three years provides a spectacular outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, analysts anticipate a rather subdued top-line growth over the next year, but a suggestively greater level of expected earnings growth. This could indicate large cost-cutting initiatives by the company to boost its earnings. This may not be seen as a maintainable practice by insiders, who may expect a deterioration in earnings to reflect lower revenues growth in the future. Or they may merely view the stock as overvalued by the market which provides a suitable time to sell.
Did Insiders Sell On Share Price Volatility?
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. ALS’s shares ranged between A$9.28 and A$7.29 over the past three months. This indicates moderate volatility with a share price movement of 27.39%. Insiders’ purchases may not be driven by this movement but perhaps they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
Next Steps:
ALS’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, 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. 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 essential factors you should further examine: