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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 before you buy or sell GigaMedia Limited (NASDAQ:GIGM), you may well want to know whether insiders have been buying or selling.
What Is Insider Selling?
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.
Insider transactions are not the most important thing when it comes to long-term investing. 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.’
See our latest analysis for GigaMedia
GigaMedia Insider Transactions Over The Last Year
Chairman Cheng-Ming Huang made the biggest insider purchase in the last 12 months. That single transaction was for US$419k worth of shares at a price of US$2.91 each. That means that an insider was happy to buy shares at above the current price of US$2.58. It’s very possible they regret the purchase, but it’s more likely they are bullish about the company. To us, it’s very important to consider the price insiders pay for shares is very important. It is encouraging to see an insider paid above the current price for shares, as it suggests they saw value, even at higher levels. Cheng-Ming Huang was the only individual insider to buy shares in the last twelve months.
Cheng-Ming Huang bought 435k shares over the last 12 months at an average price of US$2.79. 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!
Insider Ownership
For a common shareholder, it is worth checking how many shares are held by company insiders. We usually like to see fairly high levels of insider ownership. Insiders own 40% of GigaMedia shares, worth about US$11m. We’ve certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
So What Does This Data Suggest About GigaMedia Insiders?
It is good to see the recent insider purchase. We also take confidence from the longer term picture of insider transactions. But on the other hand, the company made a loss last year, which makes us a little cautious. When combined with notable insider ownership, these factors suggest GigaMedia insiders are well aligned, and that they may think the share price is too low. I like to dive deeper into how a company has performed in the past. You can find historic revenue and earnings in this detailed graph.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body.
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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.