Encompass Health Insiders Sell US$1.3m Of Stock, Possibly Signalling Caution

The fact that multiple Encompass Health Corporation (NYSE:EHC) insiders offloaded a considerable amount of shares over the past year could have raised some eyebrows amongst investors. When evaluating insider transactions, knowing whether insiders are buying is usually more beneficial than knowing whether they are selling, as the latter can be open to many interpretations. However, when multiple insiders sell stock over a specific duration, shareholders should take notice as that could possibly be a red flag.

Although we don't think shareholders should simply follow insider transactions, logic dictates you should pay some attention to whether insiders are buying or selling shares.

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Encompass Health Insider Transactions Over The Last Year

Over the last year, we can see that the biggest insider sale was by the Chief Medical Officer, Elissa Charbonneau, for US$850k worth of shares, at about US$85.02 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of US$97.96. We generally consider it a negative if insiders have been selling, especially if they did so below the current price, because it implies that they considered a lower price to be reasonable. However, while insider selling is sometimes discouraging, it's only a weak signal. This single sale was just 35% of Elissa Charbonneau's stake.

Over the last year we saw more insider selling of Encompass Health shares, than buying. You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

View our latest analysis for Encompass Health

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Encompass Health Insiders Are Selling The Stock

The last quarter saw substantial insider selling of Encompass Health shares. In total, Senior VP & Chief Accounting Officer Andrew Price sold US$496k 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.

Insider Ownership Of Encompass Health

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's great to see that Encompass Health insiders own 1.2% of the company, worth about US$120m. 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 Encompass Health Insiders?

An insider sold stock recently, but they haven't been buying. And our longer term analysis of insider transactions didn't bring confidence, either. On the plus side, Encompass Health makes money, and is growing profits. The company boasts high insider ownership, but we're a little hesitant, given the history of share sales. While it's good to be aware of 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. Case in point: We've spotted 2 warning signs for Encompass Health you should be aware of.

But note: Encompass Health 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.

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 of direct interests only, but not derivative transactions or indirect interests.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.