If insiders are selling a large amount of company stock, it can pay to approach the stock with caution. Substantial insider sales can be a sign that the stock is overvalued or that the outlook for the company is deteriorating.
In this report, we are going to highlight some significant insider selling at Remote Monitored Systems PLC (RMS:LN). Remote Monitored Systems owns a majority interest in GyroMetric Systems Limited, which develops and manufactures digital monitoring and safeguarding systems for rotating shafts. It also owns Pharm 2 Farm (P2F), a business that specializes in nanotechnology. The company is listed on the Alternative Investment Market (AIM) of the London Stock Exchange and currently has a market capitalization of £26 million.
Remote Monitored Systems: director dealing
What stands out here is a series of large insider sales between 5 November and 16 November. Our records show that during this period, Chairman Paul Ryan sold his entire holding in the company (approximately 90 million shares). Meanwhile, 10% shareholder Braveheart Investment Group – whose CEO Trevor Brown sits on the board of Remote Monitored Systems – also sold its entire holding (approximately 520 million shares).
Bearish insider selling
This insider selling pattern is very bearish, in our view. It suggests that these insiders are concerned about the company’s future prospects and that they expect the share price to fall. Our Insider model views this director dealing activity as a negative development.
Share price spike
Remote Monitored Systems shares have surged recently on the back of news that Pharm 2 Farm Limited, which RMS acquired earlier in the year, has developed a new technology for antiviral surgical masks. P2F has purchased an automated mask production line that has the capacity to produce up to five million standard or antiviral face masks per month and it plans to produce anti-Covid-19 surgical face masks certified to ISO 18184 for sale by the end of this year.
RMS advised on 11 November that a coronavirus vaccine will not lessen the demand for its antiviral mask product. However, the insider selling activity here suggests that management is not confident about the future. The fact that two insiders have offloaded all their shares in the company is concerning, in our view.
We see this insider selling as a bearish signal.