Don't Ignore The Insider Selling In Preferred Bank

We'd be surprised if Preferred Bank (NASDAQ:PFBC) shareholders haven't noticed that the Chairman, Li Yu, recently sold US$426k worth of stock at US$95.80 per share. However, the silver lining is that the sale only reduced their total holding by 0.6%, so we're hesitant to read anything much into it, on its own.

View our latest analysis for Preferred Bank

Preferred Bank Insider Transactions Over The Last Year

In fact, the recent sale by Chairman Li Yu was not their only sale of Preferred Bank shares this year. Earlier in the year, they fetched US$80.00 per share in a -US$1.6m sale. That means that an insider was selling shares at slightly below the current price (US$94.46). 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. Please do note, however, that sellers may have a variety of reasons for selling, so we don't know for sure what they think of the stock price. We note that the biggest single sale was only 2.8% of Li Yu's holding.

In total, Preferred Bank insiders sold more than they bought over 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!

I will like Preferred Bank better if I see some big insider buys. While we wait, check out this free list of undervalued and small cap stocks with considerable, recent, insider buying.

Insider Ownership

For a common shareholder, it is worth checking how many shares are held by company insiders. We usually like to see fairly high levels of insider ownership. Preferred Bank insiders own about US$93m worth of shares. That equates to 7.4% 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.

So What Does This Data Suggest About Preferred Bank Insiders?

Insiders sold Preferred Bank shares recently, but they didn't buy any. And our longer term analysis of insider transactions didn't bring confidence, either. Insiders own shares, but we're still pretty cautious, given the history of sales. We're in no rush to buy! While it's good to be aware of 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 that end, you should learn about the 2 warning signs we've spotted with Preferred Bank (including 1 which can't be ignored).

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 of direct interests only, but not derivative transactions or indirect interests.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.