NVIDIA Corp (NVDA)

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Should Investors Worry About Insider Selling For Nvidia (NVDA)?
By: Barchart | January 20, 2023

Although semiconductor and technology firm Nvidia (NVDA) commands myriad relevancies, for more than a one-year period, NVDA stock has not looked very encouraging. Most conspicuously, shares reached a peak valuation in November 2021, coinciding with the culmination of the cryptocurrency complex’s remarkable bull run. Since then, both NVDA and digital assets struggled for traction.

Heaping more pressure on Nvidia, the company recently attracted attention for perhaps a not-so-pleasant reason. Throughout this month, Nvidia Director Mark Stevens has been dumping shares fairly aggressively. Across four recorded disclosures – all of them sells – Stevens ended up dumping a total of 275,000 shares.

In contrast, last month, Stevens posted only one disclosure – a series of sales that totaled 60,000 shares. Naturally, on the surface, the fact that an insider (or an individual with intimate knowledge of the underlying company and industry) is dumping shares presents major concerns. After all, what people do matters most, not what they say.

Adding to anxieties for NVDA stock are the assumptions associated with the opposite dynamic – insider buying. As Thomas Hughes of MarketBeat pointed out, “nsider buying is always a good indication a stock is undervalued…” Could that mean Nvidia is overvalued?

To be sure, it’s impossible to absolutely ascertain the motivations of any insider transaction, be it a buy or a sell. That said, insider buys tend to mean one thing: they believe the share price is going up. Otherwise, why bother putting capital at risk if they knew shares were going down?

Of course, this logical deduction raises a conundrum for NVDA stock – do Stevens and other insiders have reasonable suspicion that shares will erode in value? It’s possible. However, insider selling may also be a prudent mechanism of taking some risk capital off the table, irrespective of the insiders’ belief in the stock or the market.

Unfortunately, in this case, it could mean something or it could mean nothing at all.

Follow the Trading Behavior for NVDA Stock

To sum up the insider transaction narrative, it boils down to speculation. As a retail investor, you’re never entirely sure what’s going on in an insider’s head. Further, even in the case of mass insider buying, such an action (though seemingly encouraging) doesn’t guarantee anything. Stated differently, insiders could be wrong about their bullishness.

With that in mind, Stevens’ trading behaviors seem to point to an overly cautious disposition. According to data from Finviz, the director’s first insider sale occurred in November 2015. But prior to the COVID-19 pandemic, activity on the insider’s end was very limited. However, this paradigm changed dramatically once the SARS-CoV-2 virus disrupted the global economy.

From the tail end of March through April 9 of 2020, Stevens exited out of 121,125 shares. Later, from that point till July 2, 2020, the director posted four disclosures, covering the total sale of 79,381 shares. However, back then, NVDA stock emerged strongly from the spring doldrums of 2020. Subsequently, Stevens stopped selling shares until late November 2021.

As mentioned earlier, that was the point when both NVDA stock and the cryptocurrency market – which Nvidia serves through mining-centric processors – began tumbling downward. Starting from November and resuming in late May of last year, Stevens began offloading NVDA shares.

Two clear takeaways exist. First, in hindsight, Stevens was too aggressive in exiting NVDA stock in March and April when the COVID-19 crisis first capsized the U.S. economy. Had the director waited a few more months, he may have recognized the broader recovery effort to which the equities market responded strongly.

The other takeaway is that it’s possible Stevens is being too pensive right now, perhaps boding well for prospective speculators. Still, past results don’t necessarily guarantee future performance, which only adds to the overall ambiguity.

Ignore the Noise

Perhaps the best approach to NVDA stock is to ignore the noise that insider transactions generate. As stated earlier, even insiders make mistakes. And the disclosures for Stevens’ transactions revealed that he made quite a lot of them in April 2020.

That might be the core lesson. If Nvidia advocates didn’t follow suit with Stevens back in 2020, it might not make sense to do so now.

Besides, Nvidia despite its troubles enjoys significant fiscal strengths. On a per-share basis, the company’s three-year revenue growth rate stands at 31.3%, above 89% of its peers. Further, it features a strong balance sheet, particularly with an Altman Z-Score of 15.42 that ranks well into the safe zone regarding bankruptcy risk.

Finally, Wall Street analysts still support NVDA stock as a consensus moderate buy, breaking down as 17 strong buys, three moderate buys and seven holds. Not one expert at time of writing issued a sell rating, which seems significant given the recent insider transactions.

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