United Community Financial Corp. operates as the holding company for Home Savings Bank that provides consumer and business banking services. United Community Financial’s insiders have divested from 477.10k shares in the small-cap stock within the past three months. It is widely considered that insider selling stock in their own companies is potentially 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 will be analysing whether these selling activities are supported by favourable future outlook and recent share price volatility.
Who Are Selling Their Shares?
There were more United Community Financial insiders that have sold shares than those that have bought. In total, individual insiders own over 1.39 million shares in the business, which makes up around 2.79% of total shares outstanding. Insiders that have recently trimmed down their holdings are Jude Nohra (management) , Matthew Garrity (management) and Patrick Bevack (board member) . The entity that sold on the open market in the last three months was Strategic Value Bank Partners LLC. 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?
Analysts’ expectations for earnings over the next 3 years of 49.4% provides a buoyant 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 negative growth in its top-line over the next year, which indicates the company may be facing some headwinds. Though, next year’s expected earnings will deliver a sizeable growth which may indicate the company’s cost controls will show meaningful results, offsetting the fall in revenue growth. Net selling activities suggest that insiders may believe the high earnings growth is hard to maintain, and have divested based on a longer term prospect. Otherwise, they may view any future growth has been overly factored into current share prices, offering a favourable time to sell.
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. In the past three months, United Community Financial’s share price reached a high of $11.53 and a low of $10.25. This indicates an immaterial change in share price, with a movement of 12.49%. 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.
United Community Financial’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 relatively stable stock price may not warrant exploiting 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. 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 examine:
- Financial Health: Does United Community 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 United Community 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.