CenturyLink, Inc. provides various communications services to residential, business, wholesale, and governmental customers primarily in the United States. CenturyLink is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 150.00k shares during this period. A well-known argument is that insiders divesting from their own companies’ shares sends a pessimistic signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. However, these signals may not be enough to gain conviction on whether to divest. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
Who Are The Insiders?
More shares have been sold than bought by CenturyLink’s insiders in the past three months. In total, individual insiders own over 7.97 million shares in the business, which makes up around 0.74% of total shares outstanding. The insider that recently sold more shares is Glen Post .
Is This Consistent With Future Growth?
At first glance, analysts’ earnings expectations of -35.21% over the next three years illustrates poor outlook for the company, consistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, CenturyLink is believed to experience a double-digit top-line growth over the next year, which has not been passed down to earnings expectations given its large negative growth expectations. This could illustrate high levels of cost growth relative to revenue, which is typical during a period of investment and growth in the company. Insider selling activities seem to support this continued negative earnings outlook. Or perhaps they view the stock as overvalued by the market which provides an opportune 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. In the past three months, CenturyLink’s share price reached a high of $23.98 and a low of $17.43. This indicates a fairly large volatility with a share price movement of 37.58%. Insiders may deem this relatively meaningful movement as an opportunity to decrease their shareholdings. Or perhaps their reason to sell is not driven by price or growth prospects and merely by their own personal diversification or monetary needs.
CenturyLink’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, reinforced by the negative earnings growth expectations, as well as the relatively large share price volatility over the same period of trade. 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 compiled two key aspects you should further examine:
- Financial Health: Does CenturyLink 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 CenturyLink? 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.