Did An Insider Sell Their Shares In Foamix Pharmaceuticals Ltd (NASDAQ:FOMX)?
Foamix Pharmaceuticals Ltd., a clinical-stage specialty pharmaceutical company, develops and commercializes foam-based formulations primarily for the treatment of moderate-to-severe acne, moderate-to-severe papulo-pustular rosacea, and other skin conditions in the United States and Germany. Foamix Pharmaceuticals’s insiders have divested from 11.93k shares in the small-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%. But these signals may not be sufficient to gain confidence on whether to divest. 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 Foamix Pharmaceuticals
Which Insiders Are Selling?
More shares have been sold than bought by Foamix Pharmaceuticals’s insiders in the past three months. In total, individual insiders own over 5.23 million shares in the business, which makes up around 12.84% of total shares outstanding. The following insiders have recently reduced their company holdings: Alvin Howard (management and board member) , David Domzalski (management) , Iain Stuart (management) and Russell Elliott (management) .
Is This Consistent With Future Growth?
At first glance, analysts’ earnings expectations of 53.1% 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, Foamix Pharmaceuticals is believed to experience an impressive double-digit top-line growth next year, which seems to flow through to its expected earnings growth of 18.6%. Continued revenue growth combined with cost-efficiency initiatives could lead to even higher earnings growth going forward. But this positive outlook is not supported by insiders’ selling activities which may mean they see things differently to the current optimistic situation. Insiders may feel the growth is unsustainable or the market has significantly overvalued the stock.
Did Insiders Sell On Share Price Volatility?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. Foamix Pharmaceuticals’s shares ranged between $6 and $4.91 over the past three months. This indicates moderate volatility with a share price movement of 22.2%. Insiders’ purchases may not be driven by this movement but perhaps they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
Next Steps:
Foamix 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, and the share price movement may be too trivial to cash in on 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 further research:
Financial Health: Does Foamix 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 Foamix 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 editorial-team@simplywallst.com.
