We often see insiders buying up shares in companies that perform well over the long term. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So shareholders might well want to know whether insiders have been buying or selling shares in Brickworks Limited (ASX:BKW).
Do Insider Transactions Matter?
It's quite normal to see company insiders, such as board members, trading in company stock, from time to time. 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 Columbia University study found that 'insiders are more likely to engage in open market purchases of their own company’s stock when the firm is about to reveal new agreements with customers and suppliers'.
The Last 12 Months Of Insider Transactions At Brickworks
In the last twelve months, the biggest single purchase by an insider was when MD & Executive Director Lindsay Partridge bought AU$526k worth of shares at a price of AU$19.56 per share. Even though the purchase was made at a significantly lower price than the recent price (AU$24.45), we still think insider buying is a positive. Because it occurred at a lower valuation, it doesn't tell us much about whether insiders might find today's price attractive.
Over the last year, we can see that insiders have bought 72.00k shares worth AU$1.4m. But they sold 16.90k shares for AU$324k. In total, Brickworks insiders bought more than they sold over the last year. The chart below shows insider transactions (by companies and individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!
There are always plenty of stocks that insiders are buying. So if that suits your style you could check each stock one by one or you could take a look at this free list of companies. (Hint: insiders have been buying them).
Insiders at Brickworks Have Bought Stock Recently
We saw some Brickworks insider buying shares in the last three months. Lead Independent Director Deborah Page bought AU$65k worth of shares in that time. It's great to see that insiders are only buying, not selling. However, in this case the amount invested recently is quite small.
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Brickworks insiders own about AU$139m worth of shares (which is 3.8% of the company). I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.
So What Do The Brickworks Insider Transactions Indicate?
It's certainly positive to see the recent insider purchase. We also take confidence from the longer term picture of insider transactions. When combined with notable insider ownership, these factors suggest Brickworks insiders are well aligned, and quite possibly think the share price is too low. Nice! 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. Our analysis shows 2 warning signs for Brickworks (1 makes us a bit uncomfortable!) and we strongly recommend you look at them before investing.
But note: Brickworks may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE 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.
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