Yahoo Finance What Virtus Health Limited’s (ASX:VRT) Insiders Know That You Don’t
Virtus Health Limited provides various healthcare services in New South Wales, Queensland, Victoria, Tasmania, Denmark, the United Kingdom, Ireland, and Singapore. Virtus Health’s insiders have divested from 731.28k shares in the small-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. 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.
Check out our latest analysis for Virtus Health
Which Insiders Are Selling?
Over the past three months, more shares have been sold than bought by Virtus Health’s insiders. In total, individual insiders own over 2.09 million shares in the business, which makes up around 2.6% of total shares outstanding. . The entity that sold on the open market in the last three months was NovaPort Capital Pty Limited. 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.
Is Future Growth Outlook As Bearish?
At first glance, analysts’ earnings expectations of 15.85% over the next three years illustrates a satisfactory outlook for the company. However this is inconsistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, Virtus Health is expected to experience a limited level of revenue growth next year, but a strong double-digit earnings growth of 11.23%. 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.
Did Insiders Sell On Share Price Volatility?
Alternatively, the timing of these insider transactions may have been driven by 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. Within the past three months, Virtus Health’s share price traded at a high of A$5.87 and a low of A$5.4. This indicates a relatively insignificant share price movement, with a small change of 8.7%. Potentially, insider transactions are not share price related but may be due to their belief on what will happen to the company in the future or simply just personal cash and diversification needs.
Next Steps:
Virtus Health’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, though the positive growth in expected earnings tells us a different story, and the relatively stable stock price may not warrant exploiting any mispricing. But we must also be aware that insiders divesting may not actually be based their views on the company’s outlook. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. there are two fundamental factors you should look at:
Financial Health: Does Virtus Health 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 Virtus Health? 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 editorial-team@simplywallst.com.
