We often see insiders buying up shares in companies that perform well over the long term. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So shareholders might well want to know whether insiders have been buying or selling shares in Federal Signal Corporation (NYSE:FSS).
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, most countries require that the company discloses such transactions to the market.
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 Colombia 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 Federal Signal
Over the last year, we can see that the biggest insider sale was by Non-Executive Chairman Dennis Martin for US$1.3m worth of shares, at about US$23.14 per share. That means that an insider was selling shares at around the current price of US$20.57. They could have a variety of motivations for selling, but it’s still not particularly encouraging to see. We generally tread carefully if insiders have been selling on market, even if they sold slightly above the current price. Dennis Martin was the only individual insider to sell shares in the last twelve months.
The chart below shows insider transactions over the last year. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Federal Signal insiders own about US$26m worth of shares (which is 2.1% 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 Federal Signal Tell Us?
An insider sold Federal Signal shares recently, but they didn’t buy any. And there weren’t any purchases to give us comfort, over the last year. On the plus side, Federal Signal makes money, and is growing profits. While insiders do own shares, they don’t own a heap, and they have been selling. So we’d only buy after careful consideration. 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.
But note: Federal Signal may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.