Park-Ohio Holdings Corp., through its subsidiaries, provides supply chain management outsourcing services, capital equipment, and manufactured components in the United States, Asia, Europe, Canada, Mexico, and internationally. Park-Ohio Holdings’s insiders have divested from 80.60k shares in the small-cap stock within the past three months. Generally, insiders selling shares in their own firm sends 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. I will be analysing whether these selling activities are supported by favourable future outlook and recent share price volatility.
Who Are The Insiders?
More shares have been sold than bought by Park-Ohio Holdings’s insiders in the past three months. In total, individual insiders own over 3.85 million shares in the business, which makes up around 31.3% of total shares outstanding. Latest selling activities involved the following insiders: Edward Crawford (management and board member) , James Wert (board member) and Ronna Romney (board member) .
Is Future Growth Outlook As Bearish?
Analysts’ expectations for revenue growth over the next 3 years of 24.9% provides a decent outlook for the company. However this is inconsistent with the signal company insiders are sending with their net selling activity. Probing further into annual growth rates, analysts anticipate a limited level of revenue growth next year, but a strong double-digit earnings growth of 26.5%. This may mean the company’s cost-cutting initiative will be significant enough to boost earnings. This may not be seen as a maintainable practice by insiders, who may expect a decline in earnings to reflect lower revenues in the future. Or they may merely view the stock as overvalued by the market which provides a suitable time to sell.
Did Stock Price Volatility Instigate Selling?
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. Within the past three months, Park-Ohio Holdings’s share price traded at a high of $42.4 and a low of $35.5. This indicates moderate volatility with a share price movement of 19.44%. Perhaps not a significant enough movement to warrant transactions, thus motivation may be a result of their belief in the company in the future or simply personal needs.
Park-Ohio Holdings’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 share price movement may be too trivial to cash in on any 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 relevant factors you should further examine:
- Financial Health: Does Park-Ohio Holdings 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 Park-Ohio Holdings? 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 firstname.lastname@example.org.