Read This Before Selling GigaMedia Limited (NASDAQ:GIGM) Shares

It is not uncommon to see companies perform well in the years after insiders buy shares. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So shareholders might well want to know whether insiders have been buying or selling shares in GigaMedia Limited (NASDAQ:GIGM).

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 in the company. However, rules govern insider transactions, and certain disclosures are required.

We don't think shareholders should simply follow insider transactions. 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'.

Check out our latest analysis for GigaMedia

The Last 12 Months Of Insider Transactions At GigaMedia

In the last twelve months, the biggest single purchase by an insider was when Chairman Cheng-Ming Huang bought US$270k worth of shares at a price of US$2.49 per share. That implies that an insider found the current price of US$2.94 per share to be enticing. Of course they may have changed their mind. But this suggests they are optimistic. While we always like to see insider buying, it's less meaningful if the purchases were made at much lower prices, as the opportunity they saw may have passed. In this case we're pleased to report that the insider bought shares at close to current prices. Cheng-Ming Huang was the only individual insider to buy during the last year.

Cheng-Ming Huang purchased 200.50k shares over the year. The average price per share was US$2.64. You can see the insider transactions (by companies and 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!

GigaMedia is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Insider Ownership of GigaMedia

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. GigaMedia insiders own about US$16m worth of shares (which is 49% of the company). 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 GigaMedia Insiders?

The fact that there have been no GigaMedia insider transactions recently certainly doesn't bother us. However, our analysis of transactions over the last year is heartening. It would be great to see more insider buying, but overall it seems like GigaMedia insiders are reasonably well aligned (owning significant chunk of the company's shares) and optimistic for the future. 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. Every company has risks, and we've spotted 1 warning sign for GigaMedia you should know about.

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. We currently account for open market transactions and private dispositions, but not derivative transactions.

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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. 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.
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