It is not uncommon to see companies perform well in the years after insiders buy shares. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So before you buy or sell Cummins Inc. (NYSE:CMI), 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 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.’
Cummins Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider sale was by the Lead Director, Alexis Herman, for US$111k worth of shares, at about US$144 per share. That means that an insider was selling shares at slightly below the current price (US$168). 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. It is worth noting that this sale was only 2.5% of Alexis Herman’s holding.
In the last twelve months insiders netted US$366k for 2528 shares sold. Cummins insiders didn’t buy any shares over the last year. You can see a visual depiction of insider transactions (by 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 Cummins 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 Cummins Have Sold Stock Recently
Over the last three months, we’ve seen significant insider selling at Cummins. In total, Alexis Herman dumped US$63k worth of shares in that time, and we didn’t record any purchases whatsoever. In light of this it’s hard to argue that all the directors think that the shares are a bargain.
Insider Ownership of Cummins
I like to look at how many shares insiders own in a company, to help inform my view of how aligned they are with insiders. We usually like to see fairly high levels of insider ownership. Cummins insiders own about US$86m worth of shares. That equates to 0.3% 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 Cummins Tell Us?
An insider hasn’t bought Cummins stock in the last three months, but there was some selling. Looking to the last twelve months, our data doesn’t show any insider buying. But it is good to see that Cummins is growing earnings. Insiders own shares, but we’re still pretty cautious, given the history of sales. We’re in no rush to buy! If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.