It is not uncommon to see companies perform well in the years after insiders buy shares. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So shareholders might well want to know whether insiders have been buying or selling shares in NextGen Healthcare, Inc. (NASDAQ:NXGN).
What Is Insider Buying?
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.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. 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'.
The Last 12 Months Of Insider Transactions At NextGen Healthcare
Over the last year, we can see that the biggest insider sale was by the Independent Director, Lance Rosenzweig, for US$496k worth of shares, at about US$20.88 per share. While we don't usually like to see insider selling, it's more concerning if the sales take place at a lower price. The good news is that this large sale was at well above current price of US$17.31. So it is hard to draw any strong conclusion from it.
Insiders in NextGen Healthcare didn't buy any shares in the last year. The chart below shows insider transactions (by companies and 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!
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Does NextGen Healthcare Boast High Insider Ownership?
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. It's great to see that NextGen Healthcare insiders own 17% of the company, worth about US$198m. 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 Does This Data Suggest About NextGen Healthcare Insiders?
There haven't been any insider transactions in the last three months -- that doesn't mean much. It's heartening that insiders own plenty of stock, but we'd like to see more insider buying, since the last year of NextGen Healthcare insider transactions don't fill us with confidence. While we like knowing 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. In terms of investment risks, we've identified 1 warning sign with NextGen Healthcare and understanding it should be part of your investment process.
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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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