It is not uncommon to see companies perform well in the years after insiders buy shares. 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 shareholders might well want to know whether insiders have been buying or selling shares in Zip Co Limited (ASX:Z1P).
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.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But logic dictates you should pay some attention to whether insiders are buying or selling shares. As Peter Lynch said, ‘insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.’
The Last 12 Months Of Insider Transactions At Zip Co
In the last twelve months, the biggest single sale by an insider was when the CEO, MD & Executive Director, Larry Diamond, sold AU$7.0m worth of shares at a price of AU$1.06 per share. So it’s clear an insider wanted to take some cash off the table, even below the current price of AU$2.93. 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 10.8% of Larry Diamond’s holding.
All up, insiders sold more shares in Zip Co than they bought, 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!
Insider Ownership of Zip Co
Many investors like to check how much of a company is owned by insiders. We usually like to see fairly high levels of insider ownership. Zip Co insiders own about AU$274m worth of shares (which is 27% of the company). Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.
So What Does This Data Suggest About Zip Co Insiders?
The fact that there have been no Zip Co insider transactions recently certainly doesn’t bother us. It’s great to see high levels of insider ownership, but looking back at the last year, we don’t gain confidence from the Zip Co insiders selling. Therefore, you should should definitely take a look at this FREE report showing analyst forecasts for Zip Co.
Of course Zip Co 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 currently account for open market transactions and private dispositions, but not derivative transactions.
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.