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 Axcella Health Inc. (NASDAQ:AXLA), you may well want to know whether insiders have been buying or selling.
Do Insider Transactions Matter?
It’s quite normal to see company insiders, such as board members, trading in company stock, from time to time. 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 equally, we would consider it foolish to ignore insider transactions altogether. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year.’
Axcella Health Insider Transactions Over The Last Year
In fact, the recent purchase by Chairman David Epstein was not their only acquisition of Axcella Health shares this year. They previously made an even bigger purchase of US$139k worth of shares at a price of US$9.57 per share. That means that an insider was happy to buy shares at above the current price of US$7.50. It’s very possible they regret the purchase, but it’s more likely they are bullish about the company. In our view, the price an insider pays 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. The only individual insider to buy over the last year was David Epstein.
David Epstein bought 38293 shares over the last 12 months at an average price of US$8.82. You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
Insider Ownership of Axcella Health
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. Insiders own 9.1% of Axcella Health shares, worth about US$16m. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
What Might The Insider Transactions At Axcella Health Tell Us?
The recent insider purchase is heartening. We also take confidence from the longer term picture of insider transactions. But we don’t feel the same about the fact the company is making losses. When combined with notable insider ownership, these factors suggest Axcella Health insiders are well aligned, and that they may think the share price is too low. Of course, the future is what matters most. So if you are interested in Axcella Health, you should check out this free report on analyst forecasts for the company.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.