Sterling Bancorp operates as the bank holding company for Sterling National Bank that provides various banking services to commercial, consumer, and municipal clients in the United States. Sterling Bancorp is one of United States’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 245.02k shares during this period. 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. But these signals may not be sufficient to gain confidence on whether to divest. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
Who Are Selling Their Shares?
More shares have been sold than bought by Sterling Bancorp’s insiders in the past three months. In total, individual insiders own over 4.42 million shares in the business, which makes up around 1.96% of total shares outstanding. Insiders that have recently sold some of their shares include James Blose and Thomas Geisel (management) . The entity that sold on the open market in the last three months was Patriot Financial Partners L.P.. Although this is an institutional investor, rather than a company executive or board member, the insights gained from direct access to management as a large investor would make it more well-informed than the average retail investor. In this specific instance, I would classify this investor as a company insider.
Does Selling Activity Reflect Future Growth?
At first glance, analysts’ earnings expectations of 132% over the next three years illustrates a very buoyant outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, analysts anticipate a strong double-digit revenue growth next year, which appears to flow through to larger earnings growth expectations. This is potentially an outcome of successful growth initiatives in place and strong cost controls, leading to sustainable operations. However, company insiders appear to know something the market doesn’t and have been divesting from the stock. This may mean they believe the impressive net income growth is hard to sustain or that optimistic sentiment has led to inflation of the share price.
Can Share Price Volatility Explain The Sell?
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. Sterling Bancorp’s shares ranged between $25.3 and $21.8 over the past three months. This indicates some volatility with a share price change of of 16.06%. 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.
Sterling Bancorp’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, however, this is rather cautious relative to analysts’ earnings expectation, and the relatively stable stock price may not warrant exploiting any 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. I’ve put together two essential aspects you should look at:
- Financial Health: Does Sterling Bancorp 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 Sterling Bancorp? 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.