ICU Medical, Inc. develops, manufactures, and sells medical devices used in vascular therapy, critical care, and oncology applications worldwide. ICU Medical’s insiders have divested from 700.79k shares in the large-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 two-decade research published in The MIT Press (1998) showed that stocks following insider selling declined 2.7% relative to the market. However, it may not be sufficient to base your investment decision merely on these signals. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
Which Insiders Are Selling?
There were more ICU Medical insiders that have sold shares than those that have bought. In total, individual insiders own over 1.44 million shares in the business, which makes up around 7.04% of total shares outstanding.
The insider that recently sold more shares is Virginia Sanzone (management) . The entity that sold on the open market in the last three months was Pfizer Inc.. 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.
Is Future Growth Outlook As Bearish?
On the surface, analysts’ earnings growth projection of 142% over the next three years provides a spectacular 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, 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 mean the company’s cost-cutting initiative will be meaningful enough to more than offset negative 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 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. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value.
In the past three months, ICU Medical’s share price reached a high of $309.75 and a low of $265.75. This indicates reasonable volatility with a change of 16.56%.
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.
ICU Medical’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 compiled two fundamental factors you should further research:
- Financial Health: Does ICU Medical 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 ICU Medical? 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.