Yahoo Finance Should You Be Worried When SKYCITY Entertainment Group Limited’s (NZSE:SKC) Insiders Sell?
SKYCITY Entertainment Group Limited, together with its subsidiaries, operates in the gaming/entertainment, hotel and convention, hospitality, recreation, and tourism sectors in New Zealand and Australia. SKYCITY Entertainment Group is one of New Zealand’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from more than 11.79 million 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. However, these signals may not be enough to gain conviction 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.
View our latest analysis for SKYCITY Entertainment Group
Who Are Selling Their Shares?
More shares have been sold than bought by SKYCITY Entertainment Group’s insiders in the past three months. In total, individual insiders own over 2.28 million shares in the business, which makes up around 0.34% of total shares outstanding. . The entity that sold on the open market in the last three months was Investors Mutual Limited Perpetual 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 This Consistent With Future Growth?
On the surface, analysts’ earnings growth projection of 197.72% over the next three years provides a spectacular outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity. Delving deeper into the line items, SKYCITY Entertainment Group is believed to experience a rather subdued top-line growth over the next year, although a significantly greater rate of earnings growth. Usually this discrepancy can be explained by an equally significant drop in costs. 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 Stock Price Volatility Instigate Selling?
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, SKYCITY Entertainment Group’s share price traded at a high of NZ$4.17 and a low of NZ$3.89. This indicates an immaterial change in share price, with a movement of 7.2%. 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:
SKYCITY Entertainment Group’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, although the positive expected earnings growth challenges this assumption, and the share price movement may be too trivial 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. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. there are two essential aspects you should further examine:
Financial Health: Does SKYCITY Entertainment Group 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 SKYCITY Entertainment Group? 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.
