Movado Group, Inc. designs, develops, sources, markets, and distributes fine watches in the United States and internationally. Movado Group’s insiders have divested from 114.45k 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 two-decade research published in The MIT Press (1998) showed that stocks following insider selling declined 2.7% relative to the market. But these signals may not be sufficient to gain confidence on whether to divest. I will be analysing whether these selling activities are supported by favourable future outlook and recent share price volatility.
Which Insiders Are Selling?
There were more Movado Group insiders that have sold shares than those that have bought. In total, individual insiders own over 3.2 million shares in the business, which makes up around 13.82% of total shares outstanding. The following insiders have recently reduced their company holdings: Alan Howard (board member) and Richard Coté (board member) .
Does Selling Activity Reflect Future Growth?
From the outside, Movado Group’s future looks good. Probing further into annual growth rates, analysts anticipate a strong double-digit revenue growth next year, which is expected to drive significant expected earnings per share growth as well. This could indicate significant cost-cutting activities or a high degree of economies of scale which may have a compounding impact in the future. Yet insiders’ selling action seem to contradict this optimistic earnings outlook which means they may perceive things differently to the market. They may deem the high growth is not sustainable or positive sentiment has been overly factored into the stock price.
Did Insiders Sell On Share Price Volatility?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Movado Group’s shares ranged between $53.05 and $40.75 over the past three months. This suggests reasonable volatility with a change of 30.18%. 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.
Movado Group’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, although the strong expected earnings growth challenges this conclusion, 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 key factors you should further research:
- Financial Health: Does Movado Group 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 Movado Group? 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.