Insider trading is illegal (in certain forms) but it occurs (in certain others). However, the trading itself tells us very little about a company’s future performance. After all, a sale in the open market can be a mere winnings collection, and no evidence of expected declining performance. For the same reason, a deeper look at the company where insider trading occurs is convenient and worthwhile. For example, on Monday March 10, Ecolab (NYSE:ECL)’s Director Jerry W. Levin sold 5,917 shares, and Executive Vice President Timothy P. Mulhere unloaded 17,200 shares. That very same day, RBC Capital raised the stock’s target price by $5 to $125. So, are the sales are indicative of promising future and an opportunity for new investors to take a position in the company?
Throughout 2013, Ecolab’s stock price has risen from $69.58 to $103.95. Moreover, since 2009 stock price has risen by 300%. An overall performance that granted the firm an award for delivering a 20 percent return on beginning shareholders’ equity and increase quarterly dividend for the 18th consecutive year. Other relevant recognitions for the company highlight the companies continues economic growth, environmental concern, and continued innovation.
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- ECL 15-Year Financial Data
- The intrinsic value of ECL
- Peter Lynch Chart of ECL
The objective growth experienced by Ecolab has offered high management an opportunity to collect returns. Hence, it is no surprise that Jerry W. Levin has sold stock since mid-2010, after stock price climbed $10 year-over-year. On the other hand, Timothy P. Mulhere waited until 2012 to start selling his share after stock price reached $64 per unit.
Return collection is all the more clear when looking at the progress of stock price. Between January 1990 and December 20002 stock price climbed from $3 to $24. But in the following 5 years, stock price reached $50 before the economic crisis disturbed the market. Nonetheless, stock price saw a more exponential growth since then reaching $104 by the end of 2013.
Will Growth Prospects Imitate Past Performance?
Matching the growth enjoyed during the last four years will be a daunting task for Ecolab. The company is far from troubled but results have been so good that replication is all the more difficult. For example, the firm reported for 2013Q4 that revenues grew 16.9% to $3,559.5 million and a 17% increment in earnings per share year-over-year. Nonetheless, analysts at Zacks remain positive about prospects pointing to the exploration of new acquisitions and opportunities at emerging markets.
With respect to acquisitions, management has not announced new transactions during 2014. However, Ecolab is set to fully integrate the businesses acquired throughout 2013. In addition to Nalco, the firm has acquired AkzoNobel to consolidate vertical integration, and Champion Technologies in order to expand its Global Energy Services franchise. At the same time, the acquisitions have raised exposure to and presence in the North American energy market.
Ecolab is present in all geographies, but the most important one is Latin America. Fast-growth in the region prompted the acquisition of Quimiproductos, in an attempt to absorb regional market synergies. Nonetheless, the company expects to increase presence in China, African continent and Middle Eastern region. On the other hand, operations in Europe are currently undergoing a major restructuring to improve efficiency and profitability.
Only one guru has been able to predict the phenomenal growth experienced by Ecolab: Jeremy Grantham (Trades, Portfolio). The others have bought and sold their positions erratically without enjoying great returns. Additionally, it is difficult to expect the phenomenal growth experienced during the last three years to repeat. And, with the stock trading at 35 times its trailing earnings, carrying a 107% premium, it is recommended to follow high management’s behavior and collect returns.
Disclosure: Vanina Egea holds no position in any of the mentioned stocks.