We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. On the other hand, we'd be remiss not to mention that insider sales have been known to precede tough periods for a business. So before you buy or sell CorVel Corporation (NASDAQ:CRVL), you may well want to know whether insiders have been buying or selling.
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 in the company. 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 equally, we would consider it foolish to ignore insider transactions altogether. For example, a Columbia 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 CorVel
Notably, that recent sale by Chairman & COO Victor Clemons was not the only time they sold CorVel shares this year. Earlier in the year, they fetched US$105 per share in a -US$377k sale. So it's clear an insider wanted to take some cash off the table, even slightly below the current price of US$106. When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. Please do note, however, that sellers may have a variety of reasons for selling, so we don't know for sure what they think of the stock price. This single sale was just 0.2% of Victor Clemons's stake.
CorVel insiders didn't buy any shares over the last year. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
I will like CorVel better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
CorVel Insiders Are Selling The Stock
Over the last three months, we've seen significant insider selling at CorVel. In total, Chairman & COO Victor Clemons sold US$3.3m 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.
Insider Ownership of CorVel
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. CorVel insiders own about US$214m worth of shares (which is 11% of the company). I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.
So What Does This Data Suggest About CorVel Insiders?
An insider hasn't bought CorVel stock in the last three months, but there was some selling. And even if we look at the last year, we didn't see any purchases. 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. So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. Case in point: We've spotted 1 warning sign for CorVel you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity and low debt.
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, but not derivative transactions.
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