Daktronics, Inc. designs, manufactures, and sells a range of electronic display systems and related products worldwide. Daktronics is one of United States’s small-cap stocks that saw some insider selling over the past three months, with insiders divesting from 6.00k shares during this period. 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.
Who Are Selling Their Shares?
More shares have been sold than bought by Daktronics’s insiders in the past three months. In total, individual insiders own over 4.95 million shares in the business, which makes up around 11.1% of total shares outstanding. The insider that recently sold more shares is Carla Gatzke (management) .
Is This Consistent With Future Growth?
From the outside, Daktronics’s future looks muted. Digging deeper into the line items, Daktronics is believed to experience a rather subdued top-line growth over the next year, but a significantly higher expected earnings growth. Usually this discrepancy can be explained by an equally significant drop in costs. However, insiders may recognise this is not a sustainable practice and this negative sentiment is evidenced by their net selling activity. 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?
Alternatively, the timing of these insider transactions may have been driven by 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. In the past three months, Daktronics’s share price reached a high of $10.05 and a low of $7.95. This suggests reasonable volatility with a change of 26.42%. 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.
Daktronics’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, although the positive expected earnings growth challenges this assumption, and 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. I’ve put together two fundamental factors you should look at:
- Financial Health: Does Daktronics 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 Daktronics? 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.