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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 before you buy or sell Red Violet, Inc. (NASDAQ:RDVT), you may well want to know whether insiders have been buying or selling.
What Is Insider Selling?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, most countries require that the company discloses such transactions to the market.
Insider transactions are not the most important thing when it comes to long-term investing. But logic dictates you should pay some attention to whether insiders are buying or selling shares. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year.’
Red Violet Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider sale was by Matthew Conlin for US$5.2m worth of shares, at about US$9.61 per share. That is hardly a positive sign, even though it took place above the latest price (US$7.51). So it may not tell us anything about how insiders feel about the current share price.
In the last twelve months insiders purchased 222.67k shares for US$1.6m. But insiders sold 1.13m shares worth US$7.2m. All up, insiders sold more shares in Red Violet than they bought, over the last year. The average sell price was around US$6.38. It’s not too encouraging to see that insiders have sold at below the current price of US$7.51. Since insiders sell for many reasons, we wouldn’t put too much weight on it. The chart below shows insider transactions (by individuals) 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!
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Red Violet Insiders Are Selling The Stock
The last quarter saw substantial insider selling of Red Violet shares. In total, insiders dumped US$6.6m worth of shares in that time, and we didn’t record any purchases whatsoever. Overall this makes us a bit cautious, but it’s not the be all and end all.
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. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. It appears that Red Violet insiders own 21% of the company, worth about US$16m. 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 Red Violet Tell Us?
Insiders sold Red Violet shares recently, but they didn’t buy any. Zooming out, the longer term picture doesn’t give us much comfort. While insiders do own shares, they don’t own a heap, and they have been selling. We’d think twice before buying! I like to dive deeper into how a company has performed in the past. You can access this interactive graph of past earnings, revenue and cash flow for free .
Of course Red Violet may not be the best stock to buy. So you may wish to see this free collection of high quality companies.
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 email@example.com.