22nd Century Group, Inc., a plant biotechnology company, provides technology that allows increasing or decreasing the level of nicotine and other nicotinic alkaloids in tobacco plants, and cannabinoids in hemp/cannabis plants through genetic engineering and plant breeding. 22nd Century Group is one of United States’s small-cap stocks that saw some insider selling over the past three months, with insiders divesting from 50.00k shares during this period. 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. 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 Selling Their Shares?
There were more 22nd Century Group insiders that have sold shares than those that have bought. In total, individual insiders own over 9.88 million shares in the business, which makes up around 7.95% of total shares outstanding. The insider that recently sold more shares is Thomas James (management) .
Does Selling Activity Reflect Future Growth?
At first glance, there are dark clouds on the horizon for 22nd Century Group. Probing further into annual growth rates, analysts anticipate negative growth in its top-line over the next year, which indicates the company may be facing some headwinds. This will likely flow through to its earnings per share next year, illustrated by a highly negative growth expectation, implying cost management may not be effective enough to bring the company into positive earnings growth. Selling activities by insiders seem to be consistent with this pessimistic future prospect. Or they may simply deem the current share price is well-above its intrinsic value, providing an opportune time to sell.
Did Insiders Sell On Share Price Volatility?
An alternative reason for recent trades could be insiders taking advantage of the share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. In the past three months, 22nd Century Group’s share price reached a high of $2.93 and a low of $2.08. This indicates a relatively high volatility with large change of 40.87%. 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.
22nd Century Group’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, which is consistent with the significant expected earnings growth, on top of a reasonable share price movement around the same time. 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 fundamental aspects you should further examine:
- Financial Health: Does 22nd Century 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 22nd Century 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.