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 we'll take a look at whether insiders have been buying or selling shares in CarParts.com, Inc. (NASDAQ:PRTS).
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.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But logic dictates you should pay some attention to whether insiders are buying or selling shares. For example, a Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year'.
CarParts.com Insider Transactions Over The Last Year
In the last twelve months, the biggest single sale by an insider was when the Director, Mehran Nia, sold US$26m worth of shares at a price of US$13.00 per share. That means that even when the share price was below the current price of US$14.90, an insider wanted to cash in some shares. We generally consider it a negative if insiders have been selling, especially if they did so below the current price, because it implies that they considered a lower price to be reasonable. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. It is worth noting that this sale was only 44% of Mehran Nia's holding.
Over the last year, we can see that insiders have bought 66.63k shares worth US$420k. But they sold 2.56m shares for US$30m. All up, insiders sold more shares in CarParts.com than they bought, over the last year. The average sell price was around US$11.59. It's not too encouraging to see that insiders have sold at below the current price. Of course, the sales could be motivated for a multitude of reasons, so we shouldn't jump to conclusions. You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!
I will like CarParts.com better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
CarParts.com Insiders Bought Stock Recently
Over the last three months, we've seen significant insider buying at CarParts.com. In total, insiders bought US$88k worth of shares in that time, and we didn't record any sales whatsoever. This could be interpreted as suggesting a positive outlook.
Insider Ownership of CarParts.com
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. CarParts.com insiders own about US$172m worth of shares (which is 24% of the company). This kind of significant ownership by insiders does generally increase the chance that the company is run in the interest of all shareholders.
So What Do The CarParts.com Insider Transactions Indicate?
The recent insider purchases are heartening. On the other hand the transaction history, over the last year, isn't so positive. The recent buying by some insiders , along with high insider ownership, suggest that CarParts.com insiders are fairly aligned, and optimistic. 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 2 warning signs for CarParts.com you should know about.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity 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.
If you decide to trade CarParts.com, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted
Valuation is complex, but we're helping make it simple.
Find out whether CarParts.com is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email firstname.lastname@example.org.