In This Article:
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.