Regeneron Pharmaceuticals, Inc., a biopharmaceutical company, discovers, invents, develops, manufactures, and commercializes medicines for treating serious medical conditions worldwide. Regeneron Pharmaceuticals is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 121.60k shares during this period. It is widely considered that insider selling stock in their own companies is potentially a bearish signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. However, these signals may not be enough to gain conviction 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 Selling Their Shares?
There were more Regeneron Pharmaceuticals insiders that have sold shares than those that have bought. In total, individual insiders own over 4.11 million shares in the business, which makes up around 3.8% of total shares outstanding. . The entity that sold on the open market in the last three months was Sanofi. Although this is an institutional investor, rather than a company executive or board member, the insights gained from direct access to management as a large investor would make it more well-informed than the average retail investor. In this specific instance, I would classify this investor as a company insider.
Does Selling Activity Reflect Future Growth?
At first glance, analysts’ earnings expectations of 50.4% over the next three years illustrates an optimistic 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, Regeneron Pharmaceuticals is expected to experience a limited level of revenue growth next year, but a significantly higher expected earnings growth. This could indicate large cost-cutting initiatives by the company to boost its 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 Insiders Sell On Share Price Volatility?
Alternatively, the timing of these insider transactions may have been driven by 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, Regeneron Pharmaceuticals’s share price reached a high of $408.51 and a low of $293.74. This suggests a relatively high volatility with large change of 39.07%. This movement is potentially meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares. Or perhaps their reason to sell is not driven by price or growth prospects and merely by the need to diversify their own portfolio holdings.
Regeneron Pharmaceuticals’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, whereas a highly volatile share price could be the driver to sell. 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 compiled two essential factors you should further research:
- Financial Health: Does Regeneron Pharmaceuticals 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 Regeneron Pharmaceuticals? 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.