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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 Waterco Limited (ASX:WAT).
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 on the market. However, most countries require that the company discloses such transactions to the market.
We don’t think shareholders should simply follow insider transactions. But it is perfectly logical to keep tabs on what insiders are doing. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year.’
Waterco Insider Transactions Over The Last Year
The Non-Executive Director, Ben Hunt, made the biggest insider sale in the last 12 months. That single transaction was for AU$785k worth of shares at a price of AU$2.12 each. We generally don’t like to see insider selling, but the lower the sale price, the more it concerns us. It’s of some comfort that this sale was conducted at a price well above the current share price, which is AU$1.61. So it may not shed much light on insider confidence at current levels. Ben Hunt was the only individual insider to sell shares in the last twelve months.
Ben Hunt sold a total of 570k shares over the year at an average price of AU$2.08. You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. A high insider ownership often makes company leadership more mindful of shareholder interests. Waterco insiders own about AU$38m worth of shares (which is 64% of the company). This kind of significant ownership by insiders does generally increase the chance that the company is run in the interest of all shareholders.
So What Do The Waterco Insider Transactions Indicate?
There haven’t been any insider transactions in the last three months — that doesn’t mean much. While we feel good about high insider ownership of Waterco, we can’t say the same about the selling of shares. To put this in context, take a look at how a company has performed in the past. You can access this detailed graph of past earnings, revenue and cash flow .
Of course Waterco may not be the best stock to buy. So you may wish to see this free collection of high quality companies.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body.
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.
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. Thank you for reading.