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 Scales Corporation Limited (NZSE:SCL), 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, such insiders must disclose their trading activities, and not trade on inside information.
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 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'.
The Last 12 Months Of Insider Transactions At Scales
In the last twelve months, the biggest single sale by an insider was when the Chief Executive Officer of Scales Logistics, Kent Ritchie, sold NZ$194k worth of shares at a price of NZ$4.86 per share. So we know that an insider sold shares at around the present share price of NZ$4.60. While insider selling is a negative, to us, it is more negative if the shares are sold at a lower price. Given that the sale took place at around current prices, it makes us a little cautious but is hardly a major concern. Notably Kent Ritchie was also the biggest buyer, having purchased NZ$35k worth of shares.
In total, Scales 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!
I will like Scales better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Insiders at Scales Have Bought Stock Recently
Over the last three months, we've seen a bit of insider buying at Scales. Chief Executive Officer of Scales Logistics Kent Ritchie shelled out NZ$35k for shares in that time. It's great to see that insiders are only buying, not selling. But in this case the amount purchased means the recent transaction may not be very meaningful on its own.
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. We usually like to see fairly high levels of insider ownership. Scales insiders own about NZ$28m worth of shares. That equates to 4.3% of the company. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
What Might The Insider Transactions At Scales Tell Us?
Insider purchases may have been minimal, in the last three months, but there was no selling at all. The net investment is not enough to encourage us much. We don't take much encouragement from the transactions by Scales insiders. But we do like the fact that insiders own a fair chunk of the company. While we like knowing what's going on with the insider's ownership and transactions, we make sure to also consider what risks are facing a stock before making any investment decision. To assist with this, we've discovered 2 warning signs that you should run your eye over to get a better picture of Scales.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity 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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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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