Did EMCOR Group Inc (NYSE:EME) Insiders Sell Their Own Shares?
EMCOR Group, Inc. provides electrical and mechanical construction, and facilities services in the United States. EMCOR Group’s insiders have divested from 25.43k shares in the large-cap stock within the past three months. A well-known argument is that insiders divesting from their own companies’ shares sends a pessimistic 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’ve analysed two possible reasons driving the insiders’ decision to reduce their investment of late.
See our latest analysis for EMCOR Group
Which Insiders Are Selling?
More shares have been sold than bought by EMCOR Group’s insiders in the past three months. In total, individual insiders own over 1.08 million shares in the business, which makes up around 1.86% of total shares outstanding. Insiders that have recently sold some of their shares include Anthony Guzzi (board member) and Jerry Ryan (management and board member) .
Is This Consistent With Future Growth?
At first glance, analysts’ earnings expectations of 20.9% over the next three years illustrates a decent outlook for the company. However this is inconsistent with the signal company insiders are sending with their net selling activity. Delving 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 15.2%. This may be due to effective cost reduction initiatives implemented by the company to drive higher earnings. This may not be seen as a maintainable practice by insiders, who may expect a decline in earnings to reflect lower revenues in the future. Or they may merely view the stock as overvalued by the market which provides a suitable time to sell.
Did Stock Price Volatility Instigate Selling?
An alternative reason for recent trades could be insiders taking advantage of the 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. Within the past three months, EMCOR Group’s share price traded at a high of $80.83 and a low of $75.05. This suggests a relatively insignificant share price movement, with a small change of 7.7%. 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.
Next Steps:
EMCOR Group’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, however, this is rather cautious relative to analysts’ earnings expectation, and the share price movement may be too trivial to cash in on any mispricing. But we must also be aware that insiders divesting may not actually be based their views on the company’s outlook. Furthermore, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve put together two fundamental factors you should further research:
Financial Health: Does EMCOR Group 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 EMCOR Group? 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.
