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 before you buy or sell Incitec Pivot Limited (ASX:IPL), you may well want to know whether insiders have been buying or selling.
What Is Insider Selling?
Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock in the company. However, most countries require that the company discloses such transactions to the market.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But it is perfectly logical to keep tabs on what insiders are doing. 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 Incitec Pivot
The Independent Non-Executive Director George Biltz made the biggest insider purchase in the last 12 months. That single transaction was for AU$260k worth of shares at a price of AU$2.60 each. So it's clear an insider wanted to buy, even at a higher price than the current share price (being AU$2.46). While their view may have changed since the purchase was made, this does at least suggest they have had confidence in the company's future. To us, it's very important to consider the price insiders pay for shares. Generally speaking, it catches our eye when an insider has purchased shares at above current prices, as it suggests they believed the shares were worth buying, even at a higher price. The only individual insider to buy over the last year was George Biltz.
You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Incitec Pivot is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Many investors like to check how much of a company is owned by insiders. I reckon it's a good sign if insiders own a significant number of shares in the company. Based on our data, Incitec Pivot insiders have about 0.08% of the stock, worth approximately AU$3.7m. I generally like to see higher levels of ownership.
So What Do The Incitec Pivot Insider Transactions Indicate?
It doesn't really mean much that no insider has traded Incitec Pivot shares in the last quarter. On a brighter note, the transactions over the last year are encouraging. We'd like to see bigger individual holdings. However, we don't see anything to make us think Incitec Pivot insiders are doubting the company. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Incitec Pivot. Every company has risks, and we've spotted 2 warning signs for Incitec Pivot you should know about.
But note: Incitec Pivot 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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