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 before you buy or sell Autoliv, Inc. (NYSE:ALV), you may well want to know whether insiders have been buying or selling.
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, rules govern insider transactions, and certain disclosures are required.
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 Autoliv
Over the last year, we can see that the biggest insider sale was by the President of Europe, Frithjof Oldorff, for US$89k worth of shares, at about US$80.95 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of US$99.30. We generally consider it a negative if insiders have been selling, especially if they did so below the current price, because it implies that they considered a lower price to be reasonable. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. We note that the biggest single sale was only 37% of Frithjof Oldorff's holding.
Insiders in Autoliv didn't buy any shares in the last year. 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!
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).
Insider Ownership of Autoliv
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. I reckon it's a good sign if insiders own a significant number of shares in the company. Autoliv insiders own about US$18m worth of shares. That equates to 0.2% of the company. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
So What Do The Autoliv Insider Transactions Indicate?
It doesn't really mean much that no insider has traded Autoliv shares in the last quarter. We don't take much encouragement from the transactions by Autoliv insiders. But we do like the fact that insiders own a fair chunk of the company. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Autoliv. For example - Autoliv has 3 warning signs we think you should be aware of.
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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