Independent Bank Corporation operates as the bank holding company for Independent Bank that provides various banking services to individuals and businesses in Michigan. Independent Bank’s insiders have divested from 15.00k 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%. 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.
Who Are Selling Their Shares?
Over the past three months, more shares have been sold than bought by Independent Bank’s insiders. In total, individual insiders own less than one million shares in the business, or around 2.84% of total shares outstanding.
The insider that recently sold more shares is Michael Magee (board member) .
Does Selling Activity Reflect Future Growth?
Analysts’ expectations for earnings over the next 3 years of 80.5% provides a fantastic outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity.
Digging deeper into the line items, Independent Bank is believed to experience decline in top-line growth next year, which could imply some headwinds going forward. Although, expected high double-digit earnings growth could indicate the company’s cost controls will show meaningful results, offsetting the fall in revenue growth.
Insiders may view this initiative as unsustainable leading to net selling of the company’s shares. Or they may simply view the current share price is well-above the intrinsic value, providing a prime time to sell.
Did Stock Price Volatility Instigate Selling?
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.
Independent Bank’s shares ranged between $26.6 and $24.1 over the past three months. This indicates a trivial share price movement, with a change of 10.37%.
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.
Independent Bank’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, though the positive growth in expected earnings tells us a different story, and the share price has not moved significantly to warrant reassessment of mispricing. 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. Furthermore, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. there are two relevant aspects you should look at:
- Financial Health: Does Independent Bank 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 Independent Bank? 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 email@example.com.