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Are Insiders Cautious About ForeScout Technologies Inc (NASDAQ:FSCT) Shares?

Kevin Zeng

ForeScout Technologies, Inc. provides network security products in the Americas, Europe, the Middle East, Africa, the Asia Pacific, and Japan. ForeScout Technologies’s insiders have divested from 459.94k shares in the large-cap stock within the past three months. 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.

See our latest analysis for ForeScout Technologies

Who Are The Insiders?

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Over the past three months, more shares have been sold than bought by ForeScout Technologies’s insiders. In total, individual insiders own over 2.18 million shares in the business, which makes up around 5.2% of total shares outstanding.

The insider that recently sold more shares is Christopher Harms (management) . The entity that sold on the open market in the last three months was Amadeus Capital Partners Limited. Although this is an institutional investor, rather than a company executive or board member, the insights gained from direct access to management as a large investor would make it more well-informed than the average retail investor. In this specific instance, I would classify this investor as a company insider.

Is Future Growth Outlook As Bearish?

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On the surface, analysts’ earnings growth projection of 76.9% over the next three years provides an upbeat outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity.

Probing further into annual growth rates, ForeScout Technologies is expected to experience a healthy double-digit top-line growth next year, which appears to flow through to an earnings growth of 25.0%. This indicates some degree of economies of scale which may have a compounding impact in the future.

Though this buoyant outlook is counter to insider selling activities, indicating they may know something the market does not. Insiders could see the double-digit growth as not sustainable or perhaps the positive sentiment has inflated the stock.

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.

Within the past three months, ForeScout Technologies’s share price traded at a high of $38.25 and a low of $31.99. This indicates some volatility with a share price change of of 19.57%.

This may not be large enough to warrant any significant divesting, therefore the underlying driver may be the insiders’ belief of company growth prospects or simply their personal portfolio diversification needs.

Next Steps:

ForeScout Technologies’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, though the positive growth in expected earnings tells us a different story, and the share price movement may be too trivial 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. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. there are two fundamental aspects you should further examine:

  1. Financial Health: Does ForeScout Technologies 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 ForeScout Technologies? 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.