Should You Be Worried About Insider Transactions At Zip Co Limited (ASX:Z1P)?

We often see insiders buying up shares in companies that perform well over the long term. 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 shareholders might well want to know whether insiders have been buying or selling shares in Zip Co Limited (ASX:Z1P).

Do Insider Transactions Matter?

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 don’t think shareholders should simply follow insider transactions. But logic dictates you should pay some attention to whether insiders are buying or selling shares. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year.’

Check out our latest analysis for Zip Co

The Last 12 Months Of Insider Transactions At Zip Co

CEO, MD & Executive Director Larry Diamond made the biggest insider sale in the last 12 months. That single transaction was for AU$7.0m worth of shares at a price of AU$1.06 each. So what is clear is that an insider saw fit to sell at around the current price of AU$1.06. While their view may have changed since the sale, this is not a particularly positive fact. We generally tread carefully if insiders have been selling on market, even if they sold slightly above the current price.

In total, Zip Co insiders sold more than they bought over the last year. The average sell price was around AU$1.06. We don’t gain confidence from insider selling below the recent share price. Since insiders sell for many reasons, we wouldn’t put too much weight on it. 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!

ASX:Z1P Insider Trading January 7th 19
ASX:Z1P Insider Trading January 7th 19

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Insiders at Zip Co Have Sold Stock Recently

Over the last three months, we’ve seen notably more insider selling, than insider buying, at Zip Co. We note insiders cashed in AU$10m worth of shares. Meanwhile Non-Executive Chairman Philip Crutchfield bought AU$95k worth. Generally this level of net selling might be considered a bit bearish.

Does Zip Co Boast High Insider Ownership?

Many investors like to check how much of a company is owned by insiders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. It appears that Zip Co insiders own 28% of the company, worth about AU$91m. 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 Zip Co Tell Us?

Unfortunately, there has been more insider selling of Zip Co stock, than buying, in the last three months. And our longer term analysis of insider transactions didn’t bring confidence, either. While insiders do own shares, they don’t own a heap, and they have been selling. So we’d only buy after careful consideration. Of course, the future is what matters most. So if you are interested in Zip Co, 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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.