We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. 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 shareholders might well want to know whether insiders have been buying or selling shares in ITC Limited (NSE:ITC).
Do Insider Transactions Matter?
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, rules govern insider transactions, and certain disclosures are required.
We don't think shareholders should simply follow insider transactions. But it is perfectly logical to keep tabs on what insiders are doing. 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'.
ITC Insider Transactions Over The Last Year
The insider, Lakshmi Balaji, made the biggest insider sale in the last 12 months. That single transaction was for ₹45m worth of shares at a price of ₹196 each. That means that even when the share price was below the current price of ₹213, 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. However, while insider selling is sometimes discouraging, it's only a weak signal. It is worth noting that this sale was 58% of Lakshmi Balaji's holding.
All up, insiders sold more shares in ITC 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 want to know exactly who sold, for how much, and when, simply click on the graph below!
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).
ITC Insiders Are Selling The Stock
Over the last three months, we've seen notably more insider selling, than insider buying, at ITC. In that time, insiders dumped ₹184m worth of shares. On the other hand we note insider Sharad Jain bought ₹41k worth of shares , as previously mentioned . Because the selling vastly outweighs the buying, we'd say this is a somewhat bearish sign.
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. Insiders own 0.2% of ITC shares, worth about ₹4.4b. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
So What Does This Data Suggest About ITC Insiders?
The insider sales have outweighed the insider buying, at ITC, in the last three months. Zooming out, the longer term picture doesn't give us much comfort. The company boasts high insider ownership, but we're a little hesitant, given the history of share sales. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing ITC. For example, ITC has 2 warning signs (and 1 which is concerning) we think you should know about.
Of course ITC may not be the best stock to buy. So you may wish to see this free collection of high quality 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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