Are Insiders Cautious About The Sherwin-Williams Company (NYSE:SHW) Shares?
The Sherwin-Williams Company develops, manufactures, distributes, and sells paints, coatings, and related products to professional, industrial, commercial, and retail customers primarily in North and South America, the Caribbean, Europe, Asia, and Australia. Sherwin-Williams’s insiders have divested from 8.45k shares in the large-cap stock within the past three months. It is widely considered that insider selling stock in their own companies is potentially 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’ve analysed two possible reasons driving the insiders’ decision to reduce their investment of late.
View our latest analysis for Sherwin-Williams
Who Are Selling Their Shares?
There were more Sherwin-Williams insiders that have sold shares than those that have bought. In total, individual insiders own less than one million shares in the business, or around 0.88% of total shares outstanding.
Insiders that have recently sold some of their shares include Susan Kropf (board member) , Joel Baxter (management) , Peter Ippolito (management) , Jane Cronin (management) , Robert Wells (management) and David Hodnik (board member) .
Is This Consistent With Future Growth?
At first glance, analysts’ earnings expectations of 13.3% over the next three years illustrates a satisfactory outlook for the company. However this is inconsistent with the signal company insiders are sending with their net selling activity.
Delving deeper into the line items, analysts anticipate a rather subdued top-line growth over the next year, which is expected to negatively impact the bottom line, with a growth rate of -11.6%. 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.
Can Share Price Volatility Explain The Sell?
An alternative reason for recent trades could be insiders taking advantage of the 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.
Within the past three months, Sherwin-Williams’s share price traded at a high of $477.98 and a low of $394.95. This indicates some volatility with a share price change of of 21.02%.
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.
Next Steps:
Sherwin-Williams’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, reinforced by the negative earnings growth expectations, although the share price has not moved significantly to warrant reassessment of 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 essential factors you should further examine:
Financial Health: Does Sherwin-Williams 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 Sherwin-Williams? 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.
