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 we'll take a look at whether insiders have been buying or selling shares in Bajaj Auto Limited (NSE:BAJAJ-AUTO).
What Is Insider Buying?
It's quite normal to see company insiders, such as board members, trading in company stock, from time to time. However, most countries require that the company discloses such transactions to the market.
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.
Bajaj Auto Insider Transactions Over The Last Year
The Non-Executive Director, Nirajkumar Bajaj, made the biggest insider sale in the last 12 months. That single transaction was for ₹156m worth of shares at a price of ₹2,952 each. So it's clear an insider wanted to take some cash off the table, even below the current price of ₹3,161. When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. However, while insider selling is sometimes discouraging, it's only a weak signal. It is worth noting that this sale was only 3.6% of Nirajkumar Bajaj's holding.
In the last twelve months insiders purchased 7400 shares for ₹21m. But insiders sold 59400 shares worth ₹175m. In total, Bajaj Auto insiders sold more than they bought over the last year. You can see the insider transactions (by individuals) over the last year depicted in the chart below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!
I will like Bajaj Auto better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Bajaj Auto Insiders Are Selling The Stock
The last quarter saw substantial insider selling of Bajaj Auto shares. Specifically, Non-Executive Director Nirajkumar Bajaj ditched ₹156m worth of shares in that time, and we didn't record any purchases whatsoever. This may suggest that some insiders think that the shares are not cheap.
I like to look at how many shares insiders own in a company, to help inform my view of how aligned they are with 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. Bajaj Auto insiders own about ₹43b worth of shares (which is 4.7% 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.
So What Does This Data Suggest About Bajaj Auto Insiders?
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. On the plus side, Bajaj Auto makes money, and is growing profits. It is good to see high insider ownership, but the insider selling leaves us cautious. If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.
But note: Bajaj Auto 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.