IDEX Corporation, through its subsidiaries, provides various pumps, valves, flow meters, other fluidics systems and components, and engineered products worldwide. IDEX is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 8.63k shares during this period. Generally, insiders selling shares in their own firm sends a bearish signal. A research published in The MIT Press (1998) concluded that stocks following insider selling fell 2.7% compared 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.
Who Are The Insiders?
More shares have been sold than bought by IDEX’s insiders in the past three months. In total, individual insiders own less than one million shares in the business, or around 0.38% of total shares outstanding. Latest selling activities involved the following insiders: Jeffrey Bucklew (board member) , William Cook (management) and William Grogan (management) .
Is This Consistent With Future Growth?
At first glance, analysts’ earnings expectations of 29.3% over the next three years illustrates a good outlook for the company. However this is inconsistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, analysts anticipate a rather subdued top-line growth over the next year, but a strong double-digit earnings growth of 11.6%. This may be due to effective cost reduction initiatives implemented by the company to drive higher 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.
Did Stock Price Volatility Instigate Selling?
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, IDEX’s share price reached a high of $153.76 and a low of $135.44. This suggests a relatively insignificant share price movement, with a small change of 13.53%. This could indicate insider transactions are not driven by share price changes but perhaps they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
IDEX’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, although the positive expected earnings growth challenges this assumption, 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. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve put together two fundamental factors you should further examine:
- Financial Health: Does IDEX 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 IDEX? 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.