Read This Before Buying Sanderson Farms, Inc. (NASDAQ:SAFM) Shares

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 Sanderson Farms, Inc. (NASDAQ:SAFM).

What Is Insider Buying?

Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock on the market. However, such insiders must disclose their trading activities, and not trade on inside information.

We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But it is perfectly logical to keep tabs on what insiders are doing. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year.’

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See our latest analysis for Sanderson Farms

The Last 12 Months Of Insider Transactions At Sanderson Farms

In the last twelve months, the biggest single sale by an insider was when the President, Lampkin Butts, sold US$1.3m worth of shares at a price of US$129 per share. So it’s clear an insider wanted to take some cash off the table, even below the current price of US$153. 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. While insider selling is not a positive sign, we can’t be sure if it does mean insiders think the shares are fully valued, so it’s only a weak sign. It is worth noting that this sale was only 7.8% of Lampkin Butts’s holding.

In the last twelve months insiders netted US$1.5m for 12352 shares sold. Insiders in Sanderson Farms didn’t buy any shares in the last year. You can see the insider transactions (by 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!

NasdaqGS:SAFM Recent Insider Trading, May 21st 2019
NasdaqGS:SAFM Recent Insider Trading, May 21st 2019

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Insiders at Sanderson Farms Have Sold Stock Recently

The last three months saw significant insider selling at Sanderson Farms. In total, insiders sold US$1.4m worth of shares in that time, and we didn’t record any purchases whatsoever. This may suggest that some insiders think that the shares are not cheap.

Does Sanderson Farms Boast High Insider Ownership?

For a common shareholder, it is worth checking how many shares are held by company 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’s great to see that Sanderson Farms insiders own 5.5% of the company, worth about US$187m. Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.

So What Do The Sanderson Farms Insider Transactions Indicate?

Insiders sold stock recently, but they haven’t been buying. Looking to the last twelve months, our data doesn’t show any insider buying. While insiders do own a lot of shares in the company (which is good), our analysis of their transactions doesn’t make us feel confident about the company. Therefore, you should should definitely take a look at this FREE report showing analyst forecasts for Sanderson Farms.

But note: Sanderson Farms 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.

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 editorial-team@simplywallst.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.