Tompkins Financial Corporation operates as a community-based financial services company that provides commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services. Tompkins Financial’s insiders have divested from 750.00 shares in the large-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 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 will be analysing whether these selling activities are supported by favourable future outlook and recent share price volatility.
Which Insiders Are Selling?
Over the past three months, more shares have been sold than bought by Tompkins Financial’s insiders. In total, individual insiders own less than one million shares in the business, or around 3.7% of total shares outstanding.
The insider that recently sold more shares is Gerald Klein .
Is This Consistent With Future Growth?
Analysts’ expectations for earnings over the next 3 years of 54.4% provides a strong 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, analysts anticipate a limited level of revenue growth next year, but a suggestively greater level of expected earnings growth. This could indicate large cost-cutting initiatives by the company to boost its earnings.
This may not be seen as a maintainable practice by insiders, who may expect a deterioration in earnings to reflect lower revenues growth in the future. Or they may merely view the stock as overvalued by the market which provides a suitable 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. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook.
Within the past three months, Tompkins Financial’s share price traded at a high of $91.14 and a low of $83.25. This indicates a relatively insignificant share price movement, with a small change of 9.48%.
This could indicate insider transactions are not driven by share price changes but perhaps they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
Tompkins Financial’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. However it’s crucial to note that insider divesting may have nothing to do with their views on the company’s future performance. 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 fundamental factors you should further research:
- Financial Health: Does Tompkins Financial 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 Tompkins Financial? 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 firstname.lastname@example.org.