CEVA, Inc. licenses signal processing platforms and artificial intelligence processors for semiconductor companies and original equipment manufacturers (OEMs) serving the mobile, consumer, automotive, industrial, and Internet-of Things (IoT) markets worldwide. CEVA is one of United States’s small-cap stocks that saw some insider selling over the past three months, with insiders divesting from 4.27k shares during this period. 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.
Who Are The Insiders?
There were more CEVA insiders that have sold shares than those that have bought. In total, individual insiders own less than one million shares in the business, or around 1.62% of total shares outstanding. Latest selling activities involved the following insiders: Issachar Ohana (board member) and Maria Marced (management) .
Is Future Growth Outlook As Bearish?
At first glance, analysts’ earnings expectations of 724% over the next three years illustrates an exceptional outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity. Probing further into annual growth rates, analysts anticipate a restrained level of top-line growth over the next year, but a suggestively greater level of expected earnings growth. Generally, this difference can be explained by a large drop in cost growth. However, insiders may recognise this is not a sustainable practice and this negative sentiment is evidenced by their net selling activity. Or they may simply view the current share price is well-above the intrinsic value, providing a prime time to sell.
Did Stock Price Volatility Instigate Selling?
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, CEVA’s share price reached a high of $35 and a low of $27.6. This indicates reasonable volatility with a change of 26.81%. Perhaps not a significant enough movement to warrant transactions, thus motivation may be a result of their belief in the company in the future or simply personal needs.
CEVA’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, although the positive expected earnings growth challenges this assumption, and the share price has not moved significantly to warrant reassessment of mispricing. However, it’s important to keep in mind, insider selling may not necessarily be based on their belief of the company’s ability to perform in the future. 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 CEVA 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 CEVA? 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.