We often see insiders buying up shares in companies that perform well over the long term. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So before you buy or sell Dow Inc. (NYSE:DOW), you may well want to know whether insiders have been buying or selling.
Do Insider Transactions Matter?
Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock in the company. However, rules govern insider transactions, and certain disclosures are required.
We don’t think shareholders should simply follow insider transactions. But equally, we would consider it foolish to ignore insider transactions altogether. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year’.
Dow Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider purchase was by Lead Independent Director Jeffrey Fettig for US$572k worth of shares, at about US$38.13 per share. Although we like to see insider buying, we note that this large purchase was at significantly below the recent price of US$49.23. Because it occurred at a lower valuation, it doesn’t tell us much about whether insiders might find today’s price attractive.
In the last twelve months insiders purchased 69.55k shares for US$2.1m. But insiders sold 15.40k shares worth US$846k. In the last twelve months there was more buying than selling by Dow insiders. Their average price was about US$29.97. We don’t deny that it is nice to see insiders buying stock in the company. However, we do note that they were buying at significantly lower prices than today’s share price. The chart below shows insider transactions (by companies and individuals) over the last year. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Dow is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Does Dow Boast High Insider Ownership?
I like to look at how many shares insiders own in a company, to help inform my view of how aligned they are with insiders. A high insider ownership often makes company leadership more mindful of shareholder interests. Dow insiders own about US$29m worth of shares. That equates to 0.08% of the company. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
So What Do The Dow Insider Transactions Indicate?
The fact that there have been no Dow insider transactions recently certainly doesn’t bother us. However, our analysis of transactions over the last year is heartening. Insiders own shares in Dow and we see no evidence to suggest they are worried about the future. So while it’s helpful to know what insiders are doing in terms of buying or selling, it’s also helpful to know the risks that a particular company is facing. Case in point: We’ve spotted 2 warning signs for Dow you should be aware of.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of interesting companies, that have HIGH return on equity 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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