Consort Medical plc operates as a one-stop developer and manufacturer of drugs and premium drug delivery devices. Consort Medical’s insiders have divested from 553.55k shares in the small-cap stock within the past three months. 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.
Which Insiders Are Selling?
Over the past three months, more shares have been sold than bought by Consort Medical’s insiders. In total, individual insiders own over 1.29 million shares in the business, which makes up around 2.64% of total shares outstanding.
. Entities that sold on the open market in the last three months were Although these are institutional investors, rather than company executives or board members, the insights these investors gain from direct access to management as large investors would make them better-informed than the average retail investor. In this specific instance, I would classify these investors as company insiders.
Is This Consistent With Future Growth?
Analysts’ expectations for earnings over the next 3 years of 72.1% provides a buoyant 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, Consort Medical is expected to experience a limited level of revenue growth next year, although a significantly greater rate of earnings growth. This could indicate large cost-cutting initiatives by the company to boost its earnings.
However, insiders may recognise this is not a sustainable practice and this negative sentiment is evidenced by their net selling activity. Or they may simply view the current share price is well-above the intrinsic value, providing a prime time to sell.
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, Consort Medical’s share price reached a high of £12.87 and a low of £10.88. This indicates moderate volatility with a share price movement of 18.29%.
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.
Consort Medical’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 has not moved significantly to warrant reassessment of mispricing. 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. I’ve put together two important aspects you should further research:
Financial Health: Does Consort Medical 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 Consort Medical? 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 email@example.com.
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