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Are Insiders Pessimistic About Republic Bancorp Inc (NASDAQ:RBCA.A) Stock?

Scott Perkins

Republic Bancorp, Inc., a financial holding company, provides banking products and services in the United States. Republic Bancorp’s insiders have divested from 3.00k shares in the small-cap stock within the past three months. Generally, insiders selling shares in their own firm sends a bearish signal. A research published in The MIT Press (1998) concluded that stocks following insider selling fell 2.7% compared to the market. 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 Republic Bancorp

Who Are Selling Their Shares?

NasdaqGS:RBCA.A Insider Trading August 24th 18
NasdaqGS:RBCA.A Insider Trading August 24th 18

Over the past three months, more shares have been sold than bought by Republic Bancorp’s insiders. In total, individual insiders own over 1.51 million shares in the business, which makes up around 8.07% of total shares outstanding. The insider that recently sold more shares is Juan Montano (management) .

Is This Consistent With Future Growth?

NasdaqGS:RBCA.A Future Profit August 24th 18
NasdaqGS:RBCA.A Future Profit August 24th 18

Analysts’ expectations for earnings over the next 3 years of 32.7% provides a buoyant outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, Republic Bancorp is expected to experience negative growth in its top-line over the next year, which indicates the company may be facing some headwinds. However, next year’s earnings are expected to exhibit double-digit growth at 23.4% which may mean the company’s cost-cutting initiative will be significant enough to more than offset negative revenue growth. Insiders may view this initiative as unsustainable leading to net selling of the company’s shares. Or they may simply view the current share price is well-above the intrinsic value, providing a prime time to sell.

Did Stock Price Volatility Instigate Selling?

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, Republic Bancorp’s share price traded at a high of $50.34 and a low of $43.25. This suggests reasonable volatility with a change of 16.39%. 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:

Republic Bancorp’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, however, this is rather cautious relative to analysts’ earnings expectation, and the relatively stable stock price may not warrant exploiting any mispricing. But we must also be aware that insiders divesting may not actually be based their views on the company’s outlook. 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 aspects you should further research:

  1. Financial Health: Does Republic Bancorp 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 Republic Bancorp? 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.