Cal-Maine Foods, Inc. produces, grades, packages, markets, and distributes shell eggs. Cal-Maine Foods’s insiders have divested from 300.00k 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 two-decade research published in The MIT Press (1998) showed that stocks following insider selling declined 2.7% relative 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?
There were more Cal-Maine Foods insiders that have sold shares than those that have bought. In total, individual insiders own over 27.29 million shares in the business, which makes up around 56.13% of total shares outstanding. The insider that recently sold more shares is Fred Adams (board member) .
Is This Consistent With Future Growth?
At first glance, analysts’ revenue growth expectations of 4.7% over the next three years illustrates a moderated outlook moving forward. Insiders may be more cautious than the market as signalled by their net selling activity. Digging deeper into the line items, 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 next year with a growth of -6.6%, indicating cost-cutting may not be significant enough to pull it through into a positive growth region yet. 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?
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, Cal-Maine Foods’s share price reached a high of $51.55 and a low of $44.25. This suggests reasonable volatility with a change of 16.5%. Insiders’ purchases may not be driven by this movement but perhaps they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
Cal-Maine Foods’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, reinforced by the negative earnings growth expectations, even if the low share price volatility did 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. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. there are two key aspects you should further research:
- Financial Health: Does Cal-Maine Foods 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 Cal-Maine Foods? 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.