Intact Financial Corporation, through its subsidiaries, provides property and casualty insurance products to individuals and businesses in Canada and the United States. Intact Financial is one of Canada’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 8.23k shares during this period. Generally, insiders selling shares in their own firm sends a bearish signal. A research published in The MIT Press (1998) concluded that stocks following insider selling fell 2.7% compared to the market. But these signals may not be sufficient to gain confidence on whether to divest. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
Who Are The Insiders?
There were more Intact Financial insiders that have sold shares than those that have bought. In total, individual insiders own less than one million shares in the business, or around 0.53% of total shares outstanding. Insiders that have recently trimmed down their holdings are Lucie Martel and Mark Tullis .
Is Future Growth Outlook As Bearish?
On the surface, analysts’ earnings growth projection of 54.3% over the next three years provides a strong outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity. Probing further into annual growth rates, analysts anticipate decline in top-line growth next year, which could imply some headwinds going forward. However, next year’s earnings are expected to exhibit significant double-digit growth which may 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?
An alternative reason for recent trades could be insiders taking advantage of the 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. Within the past three months, Intact Financial’s share price traded at a high of CA$106.99 and a low of CA$92.64. This suggests some volatility with a share price change of of 15.49%. 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.
Intact Financial’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, 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. 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 important factors you should further research:
- Financial Health: Does Intact Financial 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 Intact Financial? 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.