Yahoo Finance Are Insiders Cautious About The Kraft Heinz Company (NASDAQ:KHC) Shares?
The Kraft Heinz Company manufactures and markets food and beverage products in the United States, Canada, Europe, and internationally. Kraft Heinz’s insiders have divested from more than 20.63 million shares in the large-cap stock within the past three months. 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.
Check out our latest analysis for Kraft Heinz
Who Are The Insiders?
Over the past three months, more shares have been sold than bought by Kraft Heinz’s insiders. In total, individual insiders own less than one million shares in the business, or around 0.078% of total shares outstanding.
. The entity that sold on the open market in the last three months was 3G Capital, Inc.. 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?
On the surface, analysts’ earnings growth projection of -53.7% over the next three years provides poor outlook for the company, consistent with the signal company insiders are sending with their net selling activity.
Digging deeper into the line items, Kraft Heinz is expected to experience a restrained level of top-line growth over the next year, which contributes to the highly negative expected earnings growth. This indicates cost growth has outstripped revenue which is unsustainable.
Divestments by insiders appear to support this ongoing negative outlook. Or else they may merely view any growth potential is already factored into the share price, providing a favourable time to divest.
Did Stock Price Volatility Instigate Selling?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook.
In the past three months, Kraft Heinz’s share price reached a high of $64.48 and a low of $56.59. This suggests a trivial share price movement, with a change of 13.94%.
This may mean insiders’ motivation to trade may not be driven by the share price but rather other factors such as their belief in company growth or their personal portfolio diversification needs.
Next Steps:
Kraft Heinz’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, which is consistent with the significant expected earnings growth, even if the low share price volatility did 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. Furthermore, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve compiled two essential aspects you should look at:
Financial Health: Does Kraft Heinz 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 Kraft Heinz? 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.
