Stock Analysis

Should You Take Comfort From Insider Transactions At La Jolla Pharmaceutical Company (NASDAQ:LJPC)?

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NasdaqCM:LJPC
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It is not uncommon to see companies perform well in the years after insiders buy shares. 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 La Jolla Pharmaceutical Company (NASDAQ:LJPC).

What Is Insider Selling?

It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, such insiders must disclose their trading activities, and not trade on inside information.

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'.

See our latest analysis for La Jolla Pharmaceutical

La Jolla Pharmaceutical Insider Transactions Over The Last Year

In the last twelve months, the biggest single purchase by an insider was when Independent Director David Ramsay bought US$187k worth of shares at a price of US$4.18 per share. So it's clear an insider wanted to buy, even at a higher price than the current share price (being US$4.08). It's very possible they regret the purchase, but it's more likely they are bullish about the company. We always take careful note of the price insiders pay when purchasing shares. As a general rule, we feel more positive about a stock if insiders have bought shares at above current prices, because that suggests they viewed the stock as good value, even at a higher price.

In the last twelve months La Jolla Pharmaceutical insiders were buying shares, but not selling. 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!

insider-trading-volume
NasdaqCM:LJPC Insider Trading Volume January 5th 2021

La Jolla Pharmaceutical is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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. We usually like to see fairly high levels of insider ownership. From our data, it seems that La Jolla Pharmaceutical insiders own 5.3% of the company, worth about US$6.0m. Whilst better than nothing, we're not overly impressed by these holdings.

So What Does This Data Suggest About La Jolla Pharmaceutical Insiders?

There haven't been any insider transactions in the last three months -- that doesn't mean much. However, our analysis of transactions over the last year is heartening. We'd like to see bigger individual holdings. However, we don't see anything to make us think La Jolla Pharmaceutical insiders are doubting the company. 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. You'd be interested to know, that we found 1 warning sign for La Jolla Pharmaceutical and we suggest you have a look.

But note: La Jolla Pharmaceutical 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, but not derivative transactions.

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What are the risks and opportunities for La Jolla Pharmaceutical?

La Jolla Pharmaceutical Company engages in the development and commercialization of therapies that improve outcomes in patients suffering from life-threatening diseases.

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Rewards

  • Trading at 78.6% below our estimate of its fair value

  • Earnings are forecast to grow 59.04% per year

  • Earnings have grown 40.6% per year over the past 5 years

Risks

  • Debt is not well covered by operating cash flow

  • Highly volatile share price over the past 3 months

  • Negative shareholders equity

  • Large one-off items impacting financial results

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La Jolla Pharmaceutical

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