Possible Bearish Signals With Cummins Insiders Disposing Stock

The fact that multiple Cummins Inc. (NYSE:CMI) insiders offloaded a considerable amount of shares over the past year could have raised some eyebrows amongst investors. When analyzing insider transactions, it is usually more valuable to know whether insiders are buying versus knowing if they are selling, as the latter sends an ambiguous message. However, if numerous insiders are selling, shareholders should investigate more.

While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, we do think it is perfectly logical to keep tabs on what insiders are doing.

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The Last 12 Months Of Insider Transactions At Cummins

Over the last year, we can see that the biggest insider sale was by the Independent Director, Bruno V. Di Leo, for US$1.8m worth of shares, at about US$359 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of US$395. As a general rule we consider it to be discouraging when insiders are selling below the current price, because it suggests they were happy with a lower valuation. However, while insider selling is sometimes discouraging, it's only a weak signal. It is worth noting that this sale was 52% of Bruno V. Di Leo's holding.

In total, Cummins 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 want to know exactly who sold, for how much, and when, simply click on the graph below!

View our latest analysis for Cummins

If you like to buy stocks that insiders are buying, rather than selling, then you might just love this free list of companies. (Hint: Most of them are flying under the radar).

Insiders At Cummins Have Sold Stock Recently

The last quarter saw substantial insider selling of Cummins shares. In total, insiders dumped US$1.9m 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 insiders think that the shares are a bargain.

Insider Ownership

Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. We usually like to see fairly high levels of insider ownership. Cummins insiders own about US$252m worth of shares (which is 0.5% of the company). Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.

What Might The Insider Transactions At Cummins Tell Us?

Insiders haven't bought Cummins stock in the last three months, but there was some selling. Zooming out, the longer term picture doesn't give us much comfort. But it is good to see that Cummins is growing earnings. It is good to see high insider ownership, but the insider selling leaves us cautious. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Cummins. To assist with this, we've discovered 1 warning sign that you should run your eye over to get a better picture of Cummins.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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.