We often see insiders buying up shares in companies that perform well over the long term. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So shareholders might well want to know whether insiders have been buying or selling shares in China Automotive Systems, Inc. (NASDAQ:CAAS).
Do Insider Transactions Matter?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, most countries require that the company discloses such transactions to the market.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. 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'.
China Automotive Systems Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider sale was by the Chief Financial Officer, Jie Li, for US$452k worth of shares, at about US$9.13 per share. While insider selling is a negative, to us, it is more negative if the shares are sold at a lower price. The good news is that this large sale was at well above current price of US$4.22. So it may not shed much light on insider confidence at current levels. The only individual insider seller over the last year was Jie Li.
You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Does China Automotive Systems Boast High Insider Ownership?
Many investors like to check how much of a company is owned by 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. China Automotive Systems insiders own 54% of the company, currently worth about US$70m based on the recent share price. 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 Do The China Automotive Systems Insider Transactions Indicate?
There haven't been any insider transactions in the last three months -- that doesn't mean much. It's heartening that insiders own plenty of stock, but we'd like to see more insider buying, since the last year of China Automotive Systems insider transactions don't fill us with confidence. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing China Automotive Systems. In terms of investment risks, we've identified 1 warning sign with China Automotive Systems and understanding this should be part of your investment process.
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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