CIT Group Inc. operates as the bank holding company for CIT Bank, National Association that provides banking and related services to commercial and individual customers. CIT Group’s insiders have divested from 5.12k shares in the large-cap stock within the past three months. A well-known argument is that insiders divesting from their own companies’ shares sends a pessimistic 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?
There were more CIT Group 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 0.70% of total shares outstanding. Insiders that have recently trimmed down their holdings are Edward Sperling (management) and Sheila Stamps (board member) .
Does Selling Activity Reflect Future Growth?
On the surface, analysts’ earnings growth projection of 94.2% over the next three years provides a very optimistic outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity. Probing further into annual growth rates, CIT Group is expected to experience negative growth in its top-line over the next year, which indicates the company may be facing some headwinds. However, next year’s earnings are expected to exhibit double-digit growth at 29.9% 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.
Can Share Price Volatility Explain The Sell?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. 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, CIT Group’s share price reached a high of $55.27 and a low of $49.44. This indicates a trivial share price movement, with a change of 11.79%. 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.
CIT Group’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 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. I’ve put together two relevant aspects you should further examine:
- Financial Health: Does CIT Group 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 CIT Group? 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.