Innospec Inc. develops, manufactures, blends, markets, and supplies specialty chemicals for use as fuel additives, ingredients for personal care, home care, agrochemical, mining and other applications, and oilfield chemicals worldwide. Innospec’s insiders have divested from 11.71k shares in the large-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. However, it may not be sufficient to base your investment decision merely on these signals. I will be analysing whether these selling activities are supported by favourable future outlook and recent share price volatility.
Who Are Selling Their Shares?
Over the past three months, more shares have been sold than bought by Innospec’s insiders. In total, individual insiders own less than one million shares in the business, or around 1.64% of total shares outstanding. Latest selling activities involved the following insiders: Brian Watt (management) , Catherine Hessner , Ian McRobbie (management) and Philip Curran (management) .
Is Future Growth Outlook As Bearish?
From the outside, Innospec’s future looks mediocre. Digging deeper into the line items, analysts anticipate a limited level of revenue growth next year, but a significantly higher expected earnings growth. Generally, this difference can be explained by a large drop in cost growth. This may not be seen as a maintainable practice by insiders, who may expect a deterioration in earnings to reflect lower revenues growth in the future. Or they may merely view the stock as overvalued by the market which provides a suitable time 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. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. In the past three months, Innospec’s share price reached a high of $82.7 and a low of $73.25. This indicates a relatively insignificant share price movement, with a small change of 12.9%. 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.
Innospec’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, however, this is rather cautious relative to analysts’ earnings expectation, 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. I’ve compiled two essential aspects you should look at:
- Financial Health: Does Innospec 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 Innospec? 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.