It is not uncommon to see companies perform well in the years after insiders buy shares. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So before you buy or sell Cars.com Inc. (NYSE:CARS), you may well want to know whether insiders have been buying or selling.
What Is Insider Buying?
It’s quite normal to see company insiders, such as board members, trading in company stock, from time to time. However, most countries require that the company discloses such transactions to the market.
Insider transactions are not the most important thing when it comes to long-term investing. But logic dictates you should pay some attention to whether insiders are buying or selling shares. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year’.
The Last 12 Months Of Insider Transactions At Cars.com
In the last twelve months, the biggest single purchase by an insider was when Co-Founder T. Vetter bought US$105k worth of shares at a price of US$9.58 per share. That means that even when the share price was higher than US$9.05 (the recent price), an insider wanted to purchase shares. While their view may have changed since the purchase was made, this does at least suggest they have had confidence in the company’s future. To us, it’s very important to consider the price insiders pay for shares. It is generally more encouraging if they paid above the current price, as it suggests they saw value, even at higher levels.
In the last twelve months Cars.com insiders were buying shares, but not selling. The average buy price was around US$7.33. Although they bought at below the recent share price, it is good to see that insiders are willing to invest in the company. You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Cars.com is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Does Cars.com Boast High Insider Ownership?
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Based on our data, Cars.com insiders have about 0.7% of the stock, worth approximately US$4.1m. We consider this fairly low insider ownership.
So What Does This Data Suggest About Cars.com Insiders?
There haven’t been any insider transactions in the last three months — that doesn’t mean much. But insiders have shown more of an appetite for the stock, over the last year. The transactions are fine but it’d be more encouraging if Cars.com insiders bought more shares in the company. In addition to knowing about insider transactions going on, it’s beneficial to identify the risks facing Cars.com. For example – Cars.com has 1 warning sign we think you should be aware of.
But note: Cars.com may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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