Lancaster Colony Corporation manufactures and markets specialty food products for the retail and foodservice markets in the United States. Lancaster Colony is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 500.00 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.
Who Are The Insiders?
More shares have been sold than bought by Lancaster Colony’s insiders in the past three months. In total, individual insiders own over 7.77 million shares in the business, which makes up around 28.28% of total shares outstanding.
The insider that recently sold more shares is Douglas Fell (management) .
Is Future Growth Outlook As Bearish?
At first glance, analysts’ earnings expectations of 16.7% over the next three years illustrates a good outlook for the company. However this is inconsistent with the signal company insiders are sending with their net selling activity.
Probing further into annual growth rates, analysts anticipate a rather subdued top-line growth over the next year, which seems to trickle into the bottom line growth rate of 5.7%. Improved revenue growth combined with cost-efficiency initiatives could lead to even higher earnings growth going forward.
However, insiders seem to have a cautious outlook of the company as evidenced by their net selling activities. Or they may simply view the current share price is well-above the intrinsic value, providing a prime time to sell.
Did Insiders Sell On Share Price Volatility?
An alternative reason for recent trades could be insiders taking advantage of the share price volatility. 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, Lancaster Colony’s share price traded at a high of $160.3 and a low of $131.27. This indicates moderate volatility with a share price movement of 22.11%.
Perhaps not a significant enough movement to warrant transactions, thus motivation may be a result of their belief in the company in the future or simply personal needs.
Lancaster Colony’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, 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. But we must also be aware that insiders divesting may not actually be based their views on the company’s outlook. 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 aspects you should further examine:
- Financial Health: Does Lancaster Colony 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 Lancaster Colony? 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 email@example.com.