Yahoo Finance Would You Care If Jyothy Laboratories Limited (NSE:JYOTHYLAB) Insiders Were Selling?
Jyothy Laboratories Limited, together with its subsidiaries, manufactures and markets detergents, soaps, and mosquito repellents in India and internationally. Jyothy Laboratories is one of India’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from 14.00k shares during this period. A well-known argument is that insiders divesting from their own companies’ shares sends a pessimistic signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. 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.
Check out our latest analysis for Jyothy Laboratories
Which Insiders Are Selling?
Over the past three months, more shares have been sold than bought by Jyothy Laboratories’s insiders. In total, individual insiders own over 209.26 million shares in the business, which makes up around 57.55% of total shares outstanding.
The insider that recently sold more shares is S. Somasundaram (management) .
Is Future Growth Outlook As Bearish?
On the surface, analysts’ earnings growth projection of 54.3% over the next three years provides an upbeat outlook going forward. But this is not consistent with the signal company insiders are sending with their net selling activity.
Probing further into annual growth rates, Jyothy Laboratories is believed to experience a double-digit top-line growth over the next year, which seems to flow through to its expected earnings growth of 10.7%. This indicates some degree of economies of scale which may have a compounding impact in the future.
However, company insiders appear to know something the market doesn’t and have been divesting from the stock. This may mean they believe the strong growth is hard to maintain or that positive sentiment has led to an over-pricing of the stock price.
Did Stock Price Volatility Instigate Selling?
An alternative reason for recent trades could be insiders taking advantage of the 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.
Jyothy Laboratories’s shares ranged between ₹463.5 and ₹200.35 over the past three months. This suggests a substantial share price volatility with a change of 131.35%.
This movement is meaningful enough to trade on if directors believe the market has mispriced their companies’ shares. Alternatively, they may simply want to diversify their holdings, distribute stock to investors, or simply require the cash for personal reasons.
Next Steps:
Jyothy Laboratories’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, whereas a fairly volatile stock price could be a driver to transact. However it’s crucial to note that insider divesting may have nothing to do with their views on the company’s future performance. 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 aspects you should further research:
Financial Health: Does Jyothy Laboratories 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 Jyothy Laboratories? 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.
