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Are Insiders Bearish About Parkland Fuel Corporation (TSE:PKI)?

Ajay Mannan

Parkland Fuel Corporation operates as an independent marketer and distributor of fuels and petroleum products in Canada and the United States. Parkland Fuel’s insiders have divested from 1.26k 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. But these signals may not be sufficient to gain confidence on whether to divest. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.

View our latest analysis for Parkland Fuel

Who Are The Insiders?

TSX:PKI Insider Trading September 17th 18

There were more Parkland Fuel insiders that have sold shares than those that have bought. In total, individual insiders own over 1 million shares in the business, which makes up around 0.75% of total shares outstanding.

The insider that recently sold more shares is Richard Begg .

Does Selling Activity Reflect Future Growth?

TSX:PKI Future Profit September 17th 18

At first sight, Parkland Fuel’s future looks positive.

Probing further into annual growth rates, Parkland Fuel is expected to experience a double-digit top-line growth over the next year, which appears to flow through to larger earnings growth expectations. This could indicate significant cost-cutting activities or a high degree of economies of scale which may have a compounding impact in the future.

However, company insiders appear to know something the market doesn’t and have been divesting from the stock. This may mean they believe the impressive net income growth is hard to sustain or that optimistic sentiment has led to inflation of the share price.

Can Share Price Volatility Explain The Sell?

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, Parkland Fuel’s share price reached a high of CA$43 and a low of CA$31.44. This suggests a fairly large volatility with a share price movement of 36.77%.

This movement could potentially be significant enough to warrant directors to trade their shares. Alternatively, they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.

Next Steps:

Parkland Fuel’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, although the positive expected earnings growth challenges this assumption, but the relatively large share price volatility could explain the trade. But we must also be aware that insiders divesting may not actually be based their views on the company’s outlook. 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 research:

  1. Financial Health: Does Parkland Fuel 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.
  2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Parkland Fuel? 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 editorial-team@simplywallst.com.