It is not uncommon to see companies perform well in the years after insiders buy shares. 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 before you buy or sell Canadian Pacific Railway Limited (TSE:CP), you may well want to know whether insiders have been buying or selling.
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.
We don't think shareholders should simply follow insider transactions. But equally, we would consider it foolish to ignore insider transactions altogether. For example, a Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year'.
Canadian Pacific Railway Insider Transactions Over The Last Year
In the last twelve months, the biggest single sale by an insider was when the CEO, President & Director, Keith Creel, sold CA$23m worth of shares at a price of CA$436 per share. That means that even when the share price was below the current price of CA$487, an insider wanted to cash in some shares. As a general rule we consider it to be discouraging when insiders are selling below the current price, because it suggests they were happy with a lower valuation. Please do note, however, that sellers may have a variety of reasons for selling, so we don't know for sure what they think of the stock price. We note that the biggest single sale was 74% of Keith Creel's holding. Notably Keith Creel was also the biggest buyer, having purchased CA$300k worth of shares.
In the last twelve months insiders purchased 692.00 shares for CA$300k. But they sold 60.47k shares for CA$26m. In total, Canadian Pacific Railway insiders sold more than they bought over the last year. 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!
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Does Canadian Pacific Railway Boast High 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. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Insiders own 0.03% of Canadian Pacific Railway shares, worth about CA$16m. While this is a strong but not outstanding level of insider ownership, it's enough to indicate some alignment between management and smaller shareholders.
So What Does This Data Suggest About Canadian Pacific Railway Insiders?
It doesn't really mean much that no insider has traded Canadian Pacific Railway shares in the last quarter. Still, the insider transactions at Canadian Pacific Railway in the last 12 months are not very heartening. The modest level of insider ownership is, at least, some comfort. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Canadian Pacific Railway. For example - Canadian Pacific Railway has 1 warning sign we think you should be aware of.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting 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.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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