If multiple insiders are selling company stock, it can pay to approach the stock with caution. Insider sales can be a signal that the stock is overvalued or that the outlook for the company is deteriorating.
In this report, we are going to flag some significant insider selling at Musti Group Holding Oyj (MUSTI:FH). Musti is a Finnish company that offers a wide range foods, accessories, and services for pets. The company is listed on the OMX Nordic Exchange Helsinki and currently has a market capitalization of €942 million.
Musti: Insider Selling
Our records show that between 10 February and 12 February, six insiders at Musti sold company stock near the €27 mark. Those who sold shares included the CEO, the CFO, the Chief Commercial Officer, and the Head of Strategy. Combined, the insiders sold around €5 million worth of stock.
Digging deeper here, it appears that the reason so many insiders have sold stock is that the company’s lock-up period has just expired. In connection with the Initial Public Offering (IPO) of Musti Group, members of the Board of Directors and the Management Team of the company entered into a lock-up agreement in which they committed not to sell stock for 360 days. Now that 360 days have elapsed since the IPO, multiple insiders have offloaded stock.
Should investors be concerned about this insider selling activity?
Well, looking at the company’s results, recent performance has been quite strong. For the quarter ended 31 December 2020, for example, group net sales totalled €84.3 million, up 19.9% year on year (including like-for-like growth of 13.1%), while adjusted EBITA was €10.6 million, up 36.3% year on year. Earnings per share came in at €0.24, up from €0.13 in the prior year. It doesn’t look like there’s anything to worry about on the performance front.
The question is, however, whether this financial performance justifies the incredible run the stock has had since the IPO in February 2020. Since listing at €8.75, it has risen to €28, registering a gain of about 220% in just over a year. At the current share price, the stock trades on a trailing P/E ratio of about 50.
The large amount of insider selling suggests that insiders believe the stock has gotten ahead of itself. After all, would they be selling if they were convinced the stock was set to move higher?
Given the fact that multiple insiders have offloaded shares recently, we think caution is warranted towards Musti shares at present.