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Should You Be Worried When Altria Group Inc’s (NYSE:MO) Insiders Sell?

Arjun Bhatia

Altria Group, Inc., through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States. Altria Group’s insiders have divested from 3.17k 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. However, these signals may not be enough to gain conviction on whether to divest. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.

View our latest analysis for Altria Group

Who Are The Insiders?

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There were more Altria Group insiders that have sold shares than those that have bought. In total, individual insiders own over 1.94 million shares in the business, which makes up around 0.10% of total shares outstanding.

The insider that recently sold more shares is Dinyar Devitre (board member) .

Is This Consistent With Future Growth?

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On the surface, analysts’ earnings growth projection of -12.7% over the next three years provides negative outlook for the business, consistent with the signal company insiders are sending with their net selling activity.

Probing further into annual growth rates, analysts anticipate a rather subdued top-line growth over the next year, which contributes to the highly negative expected earnings growth. This illustrates that cost growth has excessively exceeded that of the top-line, leading to an unsustainable decline in earnings.

Divestments by insiders appear to support this ongoing negative outlook. Or else they may merely view any growth potential is already factored into the share price, providing a favourable time to divest.

Did Stock Price Volatility Instigate Selling?

Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook.

In the past three months, Altria Group’s share price reached a high of $63.43 and a low of $55.87. This suggests an immaterial change in share price, with a movement of 13.53%.

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.

Next Steps:

Altria Group’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, coherent with the poor growth in expected earnings, although the share price has not moved significantly to warrant reassessment of 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 compiled two key aspects you should further research:

  1. Financial Health: Does Altria 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.
  2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Altria 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 editorial-team@simplywallst.com.