Yahoo Finance What Jones Energy Inc’s (NYSE:JONE) Insiders Know That You Don’t
Jones Energy, Inc., an independent oil and gas company, engages in the acquisition, exploration, development, and production of oil and natural gas properties in the mid-continent United States. Jones Energy is one of United States’s small-cap stocks that saw some insider selling over the past three months, with insiders divesting from 167.32k shares during this period. It is widely considered that insider selling stock in their own companies is potentially a bearish 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. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.
View our latest analysis for Jones Energy
Who Are Selling Their Shares?
More shares have been sold than bought by Jones Energy’s insiders in the past three months. In total, individual insiders own over 10.5 million shares in the business, which makes up around 10.2% of total shares outstanding. . The entity that sold on the open market in the last three months was Fir Tree Capital Management LP. 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?
Analysts’ expectations for earnings over the next 3 years of 20.42% provides a decent outlook for the company. However this is inconsistent with the signal company insiders are sending with their net selling activity. Delving deeper into the line items, Jones Energy is believed to experience a rather subdued top-line growth over the next year, which appears to negatively affect earnings growth given the expected rate of -10.90%. This indicates cost growth has outstripped revenue which is unsustainable. Selling activities by insiders seem to be consistent with this pessimistic future prospect. Or they may simply deem the current share price is well-above its intrinsic value, providing an opportune time to sell.
Did Insiders Sell On Share Price Volatility?
Alternatively, the timing of these insider transactions may have been driven by share price volatility. Volatility provides an opportunity to trade on market inefficiencies when the stock is under-priced compared to the stock’s intrinsic value. Within the past three months, Jones Energy’s share price traded at a high of $0.75 and a low of $0.30. This indicates meaningful movements in the share price with a change of 151.04%. This meaningful movement could be a reason why insiders have decided to decrease their shareholdings. Or perhaps their reason to sell is not driven by price or growth prospects and merely by their own personal portfolio needs.
Next Steps:
Jones Energy’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, which is consistent with the significant expected earnings growth, as well as the significant share price volatility over the same period of trade. However, it’s important to keep in mind, insider selling may not necessarily be based on their belief of the company’s ability to perform in the future. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve compiled two fundamental aspects you should look at:
Financial Health: Does Jones Energy 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 Jones Energy? 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.
