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Did An Insider Sell Their Shares In Evolution Mining Limited (ASX:EVN)?

Evolution Mining Limited engages in identifying, developing, and operating gold related projects in Australia and New Zealand. Evolution Mining is one of Australia’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from more than 93.23 million shares during this period. A well-known argument is that insiders divesting from their own companies’ shares sends a pessimistic 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.

View our latest analysis for Evolution Mining

Which Insiders Are Selling?

ASX:EVN Insider Trading September 10th 18
ASX:EVN Insider Trading September 10th 18

Over the past three months, more shares have been sold than bought by Evolution Mining’s insiders. In total, individual insiders own over 17.96 million shares in the business, which makes up around 1.06% of total shares outstanding. . The entity that sold on the open market in the last three months was La Mancha Holding SARL Legal & General Investment Management Limited Van Eck Associates Corporation. 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?

ASX:EVN Future Profit September 10th 18
ASX:EVN Future Profit September 10th 18

Analysts’ expectations for earnings over the next 3 years of 25.1% provides a positive 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, Evolution Mining is expected to experience negative growth in its top-line over the next year, which indicates the company may be facing some headwinds. This will likely flow through to its earnings next year with a growth of -2.7%, implying cost management may not be efficient enough to bring the company into a positive growth zone. Insiders’ net selling activity seems to bolster this negative sentiment. Otherwise, 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. 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, Evolution Mining’s share price reached a high of A$3.58 and a low of A$2.66. This indicates moderate volatility with a share price movement of 34.84%. This may not be large enough to warrant any significant divesting, therefore the underlying driver may be the insiders’ belief of company growth prospects or simply their personal portfolio diversification needs.

Next Steps:

Evolution Mining’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, reinforced by the negative earnings growth expectations, on top of a reasonable share price movement around the same time. However, it’s important to keep in mind, insider selling may not necessarily be based on their belief of the company’s ability to perform in the future. 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 important factors you should further research:

  1. Financial Health: Does Evolution Mining 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 Evolution Mining? 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.

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