Insiders At Eaton Sold US$36m In Stock, Alluding To Potential Weakness

Over the past year, many Eaton Corporation plc (NYSE:ETN) insiders sold a significant stake in the company which may have piqued investors' interest. 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, shareholders should take a deeper look if several insiders are selling stock over a specific time period.

Although we don't think shareholders should simply follow insider transactions, we would consider it foolish to ignore insider transactions altogether.

View our latest analysis for Eaton

The Last 12 Months Of Insider Transactions At Eaton

In the last twelve months, the biggest single sale by an insider was when the Chairman & CEO, Craig Arnold, sold US$22m worth of shares at a price of US$362 per share. We generally don't like to see insider selling, but the lower the sale price, the more it concerns us. The silver lining is that this sell-down took place above the latest price (US$320). So it is hard to draw any strong conclusion from it.

In the last twelve months insiders purchased 2.71k shares for US$812k. But they sold 102.00k shares for US$36m. In total, Eaton 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 Eaton 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.

Eaton Insiders Are Selling The Stock

Over the last three months, we've seen significant insider selling at Eaton. In total, insiders sold US$7.0m 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

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. I reckon it's a good sign if insiders own a significant number of shares in the company. Eaton insiders own 0.2% of the company, currently worth about US$237m based on the recent share price. I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.

What Might The Insider Transactions At Eaton Tell Us?

Insiders sold Eaton shares recently, but they didn't buy any. Despite some insider buying, the longer term picture doesn't make us feel much more positive. On the plus side, Eaton makes money, and is growing profits. It is good to see high insider ownership, but the insider selling leaves us cautious. 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. Every company has risks, and we've spotted 1 warning sign for Eaton you should know about.

Of course Eaton may not be the best stock to buy. So you may wish to see this free collection of high quality 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.