Telephone and Data Systems, Inc., a telecommunications company, provides wireless, wireline, cable, and hosted and managed services in the United States. Telephone and Data Systems is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 39.57k shares during this period. A well-known argument is that insiders divesting from their own companies’ shares sends a pessimistic signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. However, it may not be sufficient to base your investment decision merely on these signals. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.
Which Insiders Are Selling?
There were more Telephone and Data Systems insiders that have sold shares than those that have bought. In total, individual insiders own over 14.73 million shares in the business, which makes up around 13.16% of total shares outstanding. The following insiders have recently reduced their company holdings: Clarence Davis (management) , Douglas Chambers (management) , Joseph Hanley (board member) , Kurt Thaus (board member) , Mitchell Saranow (board member) and Prudence Carlson (management) .
Is Future Growth Outlook As Bearish?
On the surface, analysts’ earnings growth projection of -76.8% over the next three years provides poor outlook for the company, consistent with the signal company insiders are sending with their net selling activity. Probing further into annual growth rates, Telephone and Data Systems is believed to experience a restrained level of top-line growth over the next year, which contributes to the highly negative expected earnings growth. This indicates cost growth has outstripped revenue which is unsustainable. Insiders’ net selling activity seems to bolster this negative sentiment. Otherwise, they may simply view the current share price is well-above the intrinsic value, providing a prime time to sell.
Did Stock Price Volatility Instigate Selling?
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, Telephone and Data Systems’s share price reached a high of $30.68 and a low of $24.13. This indicates moderate volatility with a share price movement of 27.14%. 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.
Telephone and Data Systems’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, coherent with the poor growth in expected earnings, though share price volatility was perhaps inconsequential to cash in on 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. Furthermore, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve compiled two essential factors you should look at:
- Financial Health: Does Telephone and Data Systems 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 Telephone and Data Systems? 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.