Read This Before Selling Praxis Precision Medicines, Inc. (NASDAQ:PRAX) Shares

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 Praxis Precision Medicines, Inc. (NASDAQ:PRAX).

What Is Insider Buying?

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.

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'.

Check out our latest analysis for Praxis Precision Medicines

The Last 12 Months Of Insider Transactions At Praxis Precision Medicines

In the last twelve months, the biggest single purchase by an insider was when insider Marcio De'Souza bought US$100k worth of shares at a price of US$26.08 per share. Even though the purchase was made at a significantly lower price than the recent price (US$57.51), we still think insider buying is a positive. While it does suggest insiders consider the stock undervalued at lower prices, this transaction doesn't tell us much about what they think of current prices.

The chart below shows insider transactions (by companies and individuals) over the last year. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

Praxis Precision Medicines 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 Praxis Precision Medicines

Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. I reckon it's a good sign if insiders own a significant number of shares in the company. It appears that Praxis Precision Medicines insiders own 1.5% of the company, worth about US$33m. 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 Do The Praxis Precision Medicines Insider Transactions Indicate?

It's certainly positive to see the recent insider purchase. And an analysis of the transactions over the last year also gives us confidence. However, we note that the company didn't make a profit over the last twelve months, which makes us cautious. Given that insiders also own a fair bit of Praxis Precision Medicines we think they are probably pretty confident of a bright future. So while it's helpful to know what insiders are doing in terms of buying or selling, it's also helpful to know the risks that a particular company is facing. Every company has risks, and we've spotted 3 warning signs for Praxis Precision Medicines (of which 1 makes us a bit uncomfortable!) you should know about.

But note: Praxis Precision Medicines 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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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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