If corporate insiders are selling company stock, it can pay to approach the security with caution. Insider sales can be a sign that the outlook for the company is deteriorating or that the stock is overvalued.
In this report, we are going to highlight some bearish insider selling activity at Aya Gold & Silver Inc (AYA:CN). Aya Gold & Silver is a Canadian mining company that is focused on the exploration, acquisition, and development of gold and silver deposits. Its flagship project is the Zgounder Silver Mine, an underground silver mine located in the Proterozoic Siroua Massif of the Anti-Atlas Range, Morocco. The company is listed on the Toronto Stock Exchange and currently has a market capitalization of CAD $705 million.
Aya Gold & Silver: Insider Selling
Our insider transaction data shows that in May, two insiders at Aya Gold & Silver made substantial sales. Throughout the month, Elias Elias, Vice-President, Legal & Corporate Secretary, reduced his holding from 166,666 shares to zero shares. Meanwhile, Raphael Beaudoin, Vice-President, Operations – who is responsible for overseeing Zgounder Silver Mine operations and developing other mining projects for the company – reduced his holding from 166,666 shares to 64,266 shares. In total, the two insiders sold around CAD $2.3 million worth of stock.
This insider selling activity is concerning for a couple of reasons. Firstly, both insiders have reduced the size of their holdings significantly. In Mr. Elias’ case, he has offloaded his entire holding.
Secondly, both Elias and Beaudoin are top-level insiders. They are likely to have a thorough understanding of the company’s recent performance and future prospects. The fact that they have sold such a large amount of stock, and reduced their holdings significantly, suggests that the company may be facing challenges.
400% Share Price Rise
Aya Gold & Silver recently posted a strong set of first-quarter results. For the quarter, the company reported revenue of $8.5 million, up 1,527% year on year. Meanwhile, operating cash flow for the period came in at $4.2 million, a 4,416% increase from Q1 2020. Silver production for the quarter was 389,132 ounces, a 481% increase from Q1 2020.
However, it’s worth noting that AYA stock has had an incredible run over the last year or so. Since the end of June 2020, Aya’s share price is up more than 400%.
After this share price increase, the valuation now looks stretched. Currently, analysts expect the group to generate earnings per share of CAD $0.07 this year, which means that the stock’s forward-looking P/E ratio is a high 105.
The insider selling activity here suggests that insiders see downside risk after the share price run. Given the size of the insiders’ sales, we think caution is warranted towards AYA stock right now.