Check If Insiders Are Selling Newcrest Mining Limited (ASX:NCM)
Newcrest Mining Limited, together with its subsidiaries, engages in the exploration, mine development, mine operation, and sale of gold and gold/copper concentrates. Newcrest Mining’s insiders have divested from more than 37.46 million shares in the large-cap stock within the past three months. 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.
See our latest analysis for Newcrest Mining
Which Insiders Are Selling?
More shares have been sold than bought by Newcrest Mining’s insiders in the past three months. In total, individual insiders own over 2 million shares in the business, which makes up around 0.26% of total shares outstanding. . The entity that sold on the open market in the last three months was BlackRock Inc. Lockheed Martin Corporation Master Retirement Trust Orbis Investment Management Limited The Vanguard Group Inc. Van Eck Associates Corporation. Although this is an institutional investor, rather than a company executive or board member, the insights gained from direct access to management as a large investor would make it more well-informed than the average retail investor. In this specific instance, I would classify this investor as a company insider.
Is This Consistent With Future Growth?
On the surface, analysts’ earnings growth projection of 235% over the next three years provides a fantastic outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity. Delving deeper into the line items, Newcrest Mining is expected to experience a double-digit top-line growth over the next year, which is expected to drive significant expected earnings growth as well. This may mean the company is reaping meaningful benefits from past growth initiatives, placing it in a beneficial position for future profits. However, company insiders appear to know something the market doesn’t and have been divesting from the stock. This may mean they believe the impressive net income growth is hard to sustain or that optimistic sentiment has led to inflation of the share 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. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. In the past three months, Newcrest Mining’s share price reached a high of A$22.26 and a low of A$19.36. This indicates a relatively insignificant share price movement, with a small change of 14.98%. Potentially, insider transactions are not share price related but may be due to their belief on what will happen to the company in the future or simply just personal cash and diversification needs.
Next Steps:
Newcrest Mining’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, though the positive growth in expected earnings tells us a different story, and the relatively stable stock price may not warrant exploiting any mispricing. 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. there are two key aspects you should further examine:
Financial Health: Does Newcrest Mining 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 Newcrest Mining? 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.
