We’ve lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. On the other hand, we’d be remiss not to mention that insider sales have been known to precede tough periods for a business. So we’ll take a look at whether insiders have been buying or selling shares in Advanced Drainage Systems, Inc. (NYSE:WMS).
What Is Insider Buying?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, such insiders must disclose their trading activities, and not trade on inside information.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. 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.
Advanced Drainage Systems Insider Transactions Over The Last Year
In the last twelve months, the biggest single sale by an insider was when the Chairman Emeritus, Joseph Chlapaty, sold US$37m worth of shares at a price of US$37.40 per share. So it’s clear an insider wanted to take some cash off the table, even below the current price of US$49.75. When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. However, while insider selling is sometimes discouraging, it’s only a weak signal. We note that the biggest single sale was only 13% of Joseph Chlapaty’s holding.
All up, insiders sold more shares in Advanced Drainage Systems than they bought, over the last year. You can see the insider transactions (by individuals) over the last year depicted in the chart below. By clicking on the graph below, you can see the precise details of each insider transaction!
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Insiders at Advanced Drainage Systems Have Sold Stock Recently
The last three months saw significant insider selling at Advanced Drainage Systems. In total, insiders sold US$620k worth of shares in that time, and we didn’t record any purchases whatsoever. This may suggest that some insiders think that the shares are not cheap.
Many investors like to check how much of a company is owned by insiders. A high insider ownership often makes company leadership more mindful of shareholder interests. It’s great to see that Advanced Drainage Systems insiders own 12% of the company, worth about US$414m. Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.
What Might The Insider Transactions At Advanced Drainage Systems Tell Us?
Insiders sold Advanced Drainage Systems shares recently, but they didn’t buy any. Zooming out, the longer term picture doesn’t give us much comfort. While insiders do own a lot of shares in the company (which is good), our analysis of their transactions doesn’t make us feel confident about the company. Of course, the future is what matters most. So if you are interested in Advanced Drainage Systems, you should check out this free report on analyst forecasts for the company.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.