Aduro BioTech, Inc., an immunotherapy company, focuses on the discovery, development, and commercialization of therapies that transform the treatment of challenging diseases. Aduro BioTech’s insiders have divested from 53.11k shares in the small-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 research published in The MIT Press (1998) concluded that stocks following insider selling fell 2.7% compared to the market. However, these signals may not be enough to gain conviction on whether to divest. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
Which Insiders Are Selling?
There were more Aduro BioTech insiders that have sold shares than those that have bought. In total, individual insiders own over 13.48 million shares in the business, which makes up around 17.05% of total shares outstanding.
The following insiders have recently reduced their company holdings: .
Does Selling Activity Reflect Future Growth?
Analysts’ expectations for earnings over the next 3 years of -3.0% provides negative outlook for the business, consistent with the signal company insiders are sending with their net selling activity.
Digging deeper into the line items, analysts anticipate an impressive double-digit top-line growth next year, which has funnelled into a much smaller earnings growth expectation of 0.5%. Continued revenue growth combined with cost-efficiency initiatives could lead to even higher earnings growth going forward.
Insiders may deem these initiatives a bit of a stretch as evidenced by their divestments of the share. Or perhaps they may perceive the stock as overvalued by the market’s optimistic sentiment which provides an opportune 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. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value.
Within the past three months, Aduro BioTech’s share price traded at a high of $8.2 and a low of $5.2. This suggests reasonably high share price volatility with a change of 57.69%.
Insiders may deem this relatively meaningful movement as an opportunity to decrease their shareholdings. Or perhaps their reason to sell is not driven by price or growth prospects and merely by their own personal diversification or monetary needs.
Aduro BioTech’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, whereas a highly volatile share price could be the driver to sell. 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 put together two important factors you should look at:
- Financial Health: Does Aduro BioTech 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 Aduro BioTech? 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.