If insiders are selling company stock, it can pay to approach the security with caution. Insider sales can be an indicator that the outlook for the stock is deteriorating.
In this report, we are going to flag a large insider sale at The Gym Group (GYM:LN). The Gym Group is a UK-based operator of low-cost gyms that are open 24/7. Currently, the group operates just under 200 gyms across the UK. The company is listed on the London Stock Exchange and currently has a market capitalization of £497 million.
The Gym Group: Insider Selling
Our data shows that on 8 July, CEO Richard Darwin sold 350,000 GYM shares at a price of £2.78 per share. This sale, which netted the insider approximately £973,000, reduced the size of his holding by 33%.
Bearish Director Dealing
This sale is worth highlighting for a couple of reasons. Firstly, it has reduced the size of the insider’s holding by a significant amount. This suggests that Mr. Darwin sees limited share price upside in the near term.
Secondly, Mr. Darwin isn’t the only top-level insider to make a large sale here recently. Our records show that on 29 March, Founder John Treharne sold 500,000 shares, netting proceeds of £1.26 million. This sale represented about 20% of his holding. On the same day, retiring director Paul Gilbert sold 204,442 shares, reducing his holding to zero shares.
Share Price Rise
The Gym Group’s share price has had a good run since November, rising back to where it was pre-Covid-19. Factoring in the two equity raises the group has completed since April 2020, the company now has a higher market cap than it did before the pandemic. The insider selling activity here suggests that this share price rise might not be justified.
While The Gym Group’s total membership numbers have increased significantly in recent months, they are still below pre-Covid-19 levels. At 24 May, the total membership number was 729,000 – about 8% below December 2019 levels. The company said in May that it expects to see limited net gains in overall membership levels over the summer months as this period is historically quiet for gyms.
Meanwhile, in terms of the financials, the company is a long way from where it was pre-Covid-19. This year, analysts expect the group to post a net loss of around £31 million, compared to a net profit of £3.6 million in 2019.
Given the lower membership numbers and expected loss, we think caution is warranted towards The Gym Group shares right now. The large sale from the CEO indicates that he believes there is risk to the downside from here.