Marlin Business Services Corp., through its subsidiaries, provides equipment financing solutions to small and mid-sized businesses in the United States. Marlin Business Services is one of United States’s small-cap stocks that saw some insider selling over the past three months, with insiders divesting from 2.70k shares during this period. Generally, insiders selling shares in their own firm sends a bearish 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, these signals may not be enough to gain conviction on whether to divest. I will be analysing whether these selling activities are supported by favourable future outlook and recent share price volatility.
Which Insiders Are Selling?
Over the past three months, more shares have been sold than bought by Marlin Business Services’s insiders. In total, individual insiders own less than one million shares in the business, or around 3.77% of total shares outstanding. Insiders that have recently sold some of their shares include James Sherlock and James Wert (board member) .
Is Future Growth Outlook As Bearish?
At first glance, analysts’ earnings expectations of 7.9% over the next three years illustrates a tamed outlook moving forward. Insiders may be more cautious than the market as signalled by their net selling activity. Probing further into annual growth rates, Marlin Business Services is believed to experience a rather subdued top-line growth over the next year, which appears to negatively affect earnings growth given the expected rate of -9.0%. Without proper cost controls, earnings could continue to exhibit negative growth which is unmaintainable. 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 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. In the past three months, Marlin Business Services’s share price reached a high of $31.1 and a low of $27.25. This indicates a relatively insignificant share price movement, with a small change of 14.13%. This may mean insiders’ motivation to trade may not be driven by the share price but rather other factors such as their belief in company growth or their personal portfolio diversification needs.
Marlin Business Services’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, reinforced by the negative earnings growth expectations, even if the low share price volatility did not warrant exploiting 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 compiled two key aspects you should further examine:
Financial Health: Does Marlin Business Services 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 Marlin Business Services? 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.