Central Garden & Pet Company, together with its subsidiaries, produces and distributes products for the lawn and garden, and pet supplies markets in the United States. Central Garden & Pet’s insiders have divested from 9.90k shares in the large-cap stock within the past three months. 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, it may not be sufficient to base your investment decision merely on these signals. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
Who Are Selling Their Shares?
There were more Central Garden & Pet insiders that have sold shares than those that have bought. In total, individual insiders own over 6.19 million shares in the business, which makes up around 10.82% of total shares outstanding. The insider that recently sold more shares is John Ranelli (management and board member) .
Is This Consistent With Future Growth?
At first glance, analysts’ earnings expectations of 0.23% 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. Delving deeper into the line items, Central Garden & Pet is believed to experience a restrained level of top-line growth over the next year, which impacts its earnings expectation resulting in a negative growth rate of -3.07%. This indicates cost growth has outstripped revenue which is unsustainable. 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 Stock Price Volatility Instigate Selling?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. Within the past three months, Central Garden & Pet’s share price traded at a high of $44.94 and a low of $38.08. This indicates moderate volatility with a share price movement of 18.01%. 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.
Central Garden & Pet’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, coherent with the poor growth in expected earnings, though share price volatility was perhaps inconsequential to cash in on any mispricing. But we must also be aware that insiders divesting may not actually be based their views on the company’s outlook. Furthermore, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. there are two important aspects you should further research:
- Financial Health: Does Central Garden & Pet 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 Central Garden & Pet? 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.