We’ve lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So we’ll take a look at whether insiders have been buying or selling shares in DiamondRock Hospitality Company (NYSE:DRH).
What Is Insider Buying?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, rules govern insider transactions, and certain disclosures are required.
Insider transactions are not the most important thing when it comes to long-term investing. 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.
The Last 12 Months Of Insider Transactions At DiamondRock Hospitality
The Independent Director, Maureen McAvey, made the biggest insider sale in the last 12 months. That single transaction was for US$83k worth of shares at a price of US$10.36 each. While we don’t usually like to see insider selling, it’s more concerning if the sales take place at a lower price. It’s of some comfort that this sale was conducted at a price well above the current share price, which is US$5.63. So it may not tell us anything about how insiders feel about the current share price. Maureen McAvey was the only individual insider to sell over the last year.
You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
I will like DiamondRock Hospitality better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. I reckon it’s a good sign if insiders own a significant number of shares in the company. It appears that DiamondRock Hospitality insiders own 1.7% of the company, worth about US$19m. We’ve certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
What Might The Insider Transactions At DiamondRock Hospitality Tell Us?
The fact that there have been no DiamondRock Hospitality insider transactions recently certainly doesn’t bother us. We don’t take much encouragement from the transactions by DiamondRock Hospitality insiders. But it’s good to see that insiders own shares in the company. 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. Be aware that DiamondRock Hospitality is showing 3 warning signs in our investment analysis, and 1 of those can’t be ignored…
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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