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How Confident Are Insiders About Federal Agricultural Mortgage Corporation (NYSE:AGM)?

Tammie Asher

Federal Agricultural Mortgage Corporation provides a secondary market for various loans made to borrowers in the United States. Federal Agricultural Mortgage is one of United States’s small-cap stocks that saw some insider selling over the past three months, with insiders divesting from 18.22k 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. But these signals may not be sufficient to gain confidence on whether to divest. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares. See our latest analysis for Federal Agricultural Mortgage

Who Are Selling Their Shares?

NYSE:AGM Insider Trading August 7th 18
NYSE:AGM Insider Trading August 7th 18

NYSE:AGM Insider Trading August 7th 18 More shares have been sold than bought by Federal Agricultural Mortgage’s insiders in the past three months. In total, individual insiders own less than one million shares in the business, or around 1.74% of total shares outstanding. Insiders that have recently sold some of their shares include Bruce Sherrick (board member), Charles Grote (board member), Dennis Brack , Dennis Everson (board member), Gregory Ramsay(management) , James Engebretsen , John Covington (board member), Mitchell Johnson(management) , Myles Watts , Sara Faivre-Davis (board member)and Thomas Hill (board member) .

Is This Consistent With Future Growth?

NYSE:AGM Future Profit August 7th 18
NYSE:AGM Future Profit August 7th 18

NYSE:AGM Future Profit August 7th 18 From the outside, Federal Agricultural Mortgage’s future looks mediocre. Digging deeper into the line items, Federal Agricultural Mortgage is believed to experience a rather subdued top-line growth over the next year, but a strong double-digit earnings growth of 23.46%. This may mean the company’s cost-cutting initiative will be significant enough to boost earnings. However, this exercise may not be viable over the long run which may prompt insiders to reconsider their shareholdings. Or else they may consider the market has overvalued the stock, presenting a favourable environment 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. Federal Agricultural Mortgage’s shares ranged between $98.52 and $85.51 over the past three months. This indicates moderate volatility with a share price movement of 15.21%. 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:

Federal Agricultural Mortgage’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 relatively stable stock price may not warrant exploiting any mispricing. However it’s crucial to note that insider divesting may have nothing to do with their views on the company’s future performance. 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 aspects you should further research:

  1. Financial Health: Does Federal Agricultural Mortgage 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.

  2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Federal Agricultural Mortgage? 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.