Selling US$9.6m Of Lithia Motors Stock Rewarded Insiders

While it’s been a great week for Lithia Motors, Inc. (NYSE:LAD) shareholders after stock gained 11%, they should consider it with a grain of salt. The fact that insiders chose to dispose of US$9.6m worth of stock in the past 12 months even though prices were relatively low could be indicative of some anticipated weakness.

Although we don't think shareholders should simply follow insider transactions, we do think it is perfectly logical to keep tabs on what insiders are doing.

Check out our latest analysis for Lithia Motors

The Last 12 Months Of Insider Transactions At Lithia Motors

The Founder & Chairman, Sidney DeBoer, made the biggest insider sale in the last 12 months. That single transaction was for US$3.5m worth of shares at a price of US$295 each. So it's clear an insider wanted to take some cash off the table, even below the current price of US$369. As a general rule we consider it to be discouraging when insiders are selling below the current price, because it suggests they were happy with a lower valuation. However, while insider selling is sometimes discouraging, it's only a weak signal. It is worth noting that this sale was only 21% of Sidney DeBoer's holding.

In the last year Lithia Motors insiders didn't buy any company stock. The chart below shows insider transactions (by companies and individuals) over the last year. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!

I will like Lithia Motors better if I see some big insider buys. While we wait, check out this free list of undervalued and small cap stocks with considerable, recent, insider buying.

Lithia Motors Insiders Are Selling The Stock

The last three months saw significant insider selling at Lithia Motors. In total, insiders sold US$9.4m worth of shares in that time, and we didn't record any purchases whatsoever. Overall this makes us a bit cautious, but it's not the be all and end all.

Does Lithia Motors Boast High Insider Ownership?

I like to look at how many shares insiders own in a company, to help inform my view of how aligned they are with insiders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Lithia Motors insiders own about US$154m worth of shares (which is 1.6% 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 Lithia Motors Insiders?

Insiders sold stock recently, but they haven't been buying. And even if we look at the last year, we didn't see any purchases. The company boasts high insider ownership, but we're a little hesitant, given the history of share sales. So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. When we did our research, we found 3 warning signs for Lithia Motors (1 shouldn't be ignored!) that we believe deserve your full attention.

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 of direct interests only, but not derivative transactions or indirect interests.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.