MKS Instruments, Inc. provides instruments, subsystems, and process control solutions that measure, control, power, deliver, monitor, and analyze critical parameters of manufacturing processes worldwide. MKS Instruments’s insiders have divested from 1.99k 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, 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 The Insiders?
More shares have been sold than bought by MKS Instruments’s insiders in the past three months. In total, individual insiders own less than one million shares in the business, or around 1.11% of total shares outstanding.
Latest selling activities involved the following insiders: Jacqueline Moloney (board member) and Peter Hanley (board member) .
Is This Consistent With Future Growth?
Analysts’ expectations for earnings over the next 3 years of 34.4% provides an optimistic outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity.
Digging deeper into the line items, MKS Instruments is expected to experience a rather subdued top-line growth over the next year, but a double-digit earnings growth at 16.6%. This may mean the company’s cost-cutting initiative will be significant enough to boost earnings.
However, this exercise may not be viable over the long run which may prompt insiders to reconsider their shareholdings. Or else they may view the market has overvalued the stock, presenting a favourable environment to sell.
Can Share Price Volatility Explain The Sell?
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, MKS Instruments’s share price traded at a high of $118.75 and a low of $85. This indicates reasonably high share price volatility with a change of 39.71%.
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.
MKS Instruments’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, though the positive growth in expected earnings tells us a different story, but the relatively large share price volatility could explain the trade. 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. I’ve compiled two relevant aspects you should further examine:
- Financial Health: Does MKS Instruments 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 MKS Instruments? 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.