Tilly’s, Inc. retails casual apparel, footwear, and accessories for young men and women, and boys and girls in the United States. Tilly’s is one of United States’s small-cap stocks that saw some insider selling over the past three months, with insiders divesting from 20.00k shares during this period. 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. However, these signals may not be enough to gain conviction on whether to divest. I’ve analysed two possible reasons driving the insiders’ decision to reduce their investment of late.
Who Are The Insiders?
Over the past three months, more shares have been sold than bought by Tilly’s’s insiders. In total, individual insiders own over 13.79 million shares in the business, which makes up around 46.9% of total shares outstanding. The insider that recently sold more shares is Hezy Shaked (management and board member) .
Is Future Growth Outlook As Bearish?
On the surface, analysts’ earnings growth projection of 78.2% over the next three years provides a strong outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity. Delving deeper into the line items, Tilly’s is believed to experience a restrained level of top-line growth over the next year, but a suggestively greater level of expected earnings growth. Usually this discrepancy can be explained by an equally significant drop in costs. However, this exercise may not be viable over the long run which may prompt insiders to reconsider their shareholdings. Or else they may view the market has overvalued the stock, presenting a favourable environment to sell.
Did Insiders Sell On Share Price Volatility?
An alternative reason for recent trades could be insiders taking advantage of the share price volatility. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. Within the past three months, Tilly’s’s share price traded at a high of $17.86 and a low of $11.61. This indicates a fairly large volatility with a share price movement of 53.83%. This movement could potentially be significant enough to warrant directors to trade their shares. Alternatively, they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
Tilly’s’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, whereas a highly volatile share price could be the driver to sell. However it’s crucial to note that insider divesting may have nothing to do with their views on the company’s future performance. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. there are two relevant aspects you should look at:
- Financial Health: Does Tilly’s 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 Tilly’s? 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.