Raytheon Company develops integrated products, services, and solutions for defense and other government markets worldwide. Raytheon is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 1.00k shares during this period. Generally, insiders selling shares in their own firm sends a bearish signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. 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.
Which Insiders Are Selling?
More shares have been sold than bought by Raytheon’s insiders in the past three months. In total, individual insiders own less than one million shares in the business, or around 0.19% of total shares outstanding. The insider that recently sold more shares is Vernon Clark (board member) .
Is This Consistent With Future Growth?
On the surface, analysts’ earnings growth projection of 59.7% over the next three years provides a great outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity. Delving deeper into the line items, Raytheon is expected to experience a restrained level of top-line growth over the next year, but a double-digit earnings growth at 27.5%. This may be due to effective cost reduction initiatives implemented by the company to drive higher earnings. However, this exercise may not be viable over the long run which may prompt insiders to reconsider their shareholdings. Or else they may view the market has overvalued the stock, presenting a favourable environment to sell.
Did Stock Price Volatility Instigate Selling?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. Raytheon’s shares ranged between $214.56 and $192.43 over the past three months. This suggests a trivial share price movement, with a change of 11.5%. Potentially, insider transactions are not share price related but may be due to their belief on what will happen to the company in the future or simply just personal cash and diversification needs.
Raytheon’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, although the positive expected earnings growth challenges this assumption, and the relatively stable stock price may not warrant exploiting any 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. there are two essential aspects you should further examine:
- Financial Health: Does Raytheon 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 Raytheon? 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.