We’ve lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. 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 Chemed Corporation (NYSE:CHE).
What Is Insider Selling?
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, rules govern insider transactions, and certain disclosures are required.
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 Chemed
In the last twelve months, the biggest single sale by an insider was when CEO, President & Director Kevin McNamara sold US$6.1m worth of shares at a price of US$323 per share. So what is clear is that an insider saw fit to sell at around the current price of US$322. They could have a variety of motivations for selling, but it’s still not particularly encouraging to see. Arguably, insider selling at around current prices should give us reason to reflect on whether the stock is fully valued at the moment.
In the last twelve months insiders purchased 101.00 shares for US$29k. But insiders sold 74.37k shares worth US$24m. Over the last year we saw more insider selling of Chemed shares, than buying. They sold for an average price of about US$316. It’s not too encouraging to see that insiders have sold at below the current price. But we wouldn’t put too much weight on the insider selling. The chart below shows insider transactions (by individuals) over the last year. If you want to know exactly who sold, for how much, and when, simply click on the graph below!
I will like Chemed better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Chemed Insiders Are Selling The Stock
The last quarter saw substantial insider selling of Chemed shares. In total, insiders dumped US$2.0m worth of shares in that time, and we didn’t record any purchases whatsoever. In light of this it’s hard to argue that all the directors think that the shares are a bargain.
Does Chemed 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. A high insider ownership often makes company leadership more mindful of shareholder interests. Chemed insiders own 2.4% of the company, currently worth about US$123m based on the recent share price. 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 Chemed Insider Transactions Indicate?
Insiders sold Chemed shares recently, but they didn’t buy any. And our longer term analysis of insider transactions didn’t bring confidence, either. On the plus side, Chemed makes money, and is growing profits. It is good to see high insider ownership, but the insider selling leaves us cautious. 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.
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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.