Stock Analysis

Insiders who sold Linamar Corporation's (TSE:LNR) earlier year may find some solace in the 4.6% drop

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Linamar Corporation's (TSE:LNR) value has fallen 4.6% in the last week, but insiders who sold CA$4.9m worth of stock over the last year have had less success. Given that the average selling price of CA$60.91 is still lower than the current share price, insiders would probably have been better off keeping their shares.

While insider transactions are not the most important thing when it comes to long-term investing, we would consider it foolish to ignore insider transactions altogether.

Our analysis indicates that LNR is potentially undervalued!

Linamar Insider Transactions Over The Last Year

Over the last year, we can see that the biggest insider purchase was by Executive Chairman of the Board & CEO Linda Hasenfratz for CA$3.6m worth of shares, at about CA$72.55 per share. That means that even when the share price was higher than CA$63.90 (the recent price), an insider wanted to purchase shares. 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. In our view, the price an insider pays for shares is very important. As a general rule, we feel more positive about a stock if insiders have bought shares at above current prices, because that suggests they viewed the stock as good value, even at a higher price.

Over the last year, we can see that insiders have bought 61.44k shares worth CA$4.3m. On the other hand they divested 81.01k shares, for CA$4.9m. Mark Stoddart sold a total of 81.01k shares over the year at an average price of CA$60.91. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!

TSX:LNR Insider Trading Volume December 6th 2022

If you like to buy stocks that insiders are buying, rather than selling, then you might just love this free list of companies. (Hint: insiders have been buying them).

Insiders At Linamar Have Sold Stock Recently

The last quarter saw substantial insider selling of Linamar shares. Specifically, CTO, Executive VP of Sales & Marketing and Non-Independent Director Mark Stoddart ditched CA$1m worth of shares in that time, and we didn't record any purchases whatsoever. Overall this makes us a bit cautious, but it's not the be all and end all.

Insider Ownership

Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. I reckon it's a good sign if insiders own a significant number of shares in the company. Linamar insiders own about CA$349m worth of shares (which is 8.8% 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.

What Might The Insider Transactions At Linamar Tell Us?

An insider sold stock recently, but they haven't been buying. Despite some insider buying, the longer term picture doesn't make us feel much more positive. While insiders do own a lot of shares in the company (which is good), our analysis of their transactions doesn't make us feel confident about the company. 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. To help with this, we've discovered 2 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in Linamar.

But note: Linamar 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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