Don't Ignore The Insider Selling In Broadcom

We wouldn't blame Broadcom Inc. (NASDAQ:AVGO) shareholders if they were a little worried about the fact that Hock Tan, the President recently netted about US$13m selling shares at an average price of US$171. However, that sale only accounted for 4.8% of their holding, so arguably it doesn't say much about their conviction.

See our latest analysis for Broadcom

The Last 12 Months Of Insider Transactions At Broadcom

Notably, that recent sale by President Hock Tan was not the only time they sold Broadcom shares this year. Earlier in the year, they fetched US$113 per share in a -US$22m sale. That means that an insider was selling shares at slightly below the current price (US$169). 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. However, while insider selling is sometimes discouraging, it's only a weak signal. We note that the biggest single sale was only 8.7% of Hock Tan's holding.

Happily, we note that in the last year insiders paid US$10m for 120.00k shares. But insiders sold 873.23k shares worth US$108m. All up, insiders sold more shares in Broadcom than they bought, over the last year. You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. By clicking on the graph below, you can see the precise details of each insider transaction!

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Insider Ownership

Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. I reckon it's a good sign if insiders own a significant number of shares in the company. Broadcom insiders own about US$10b worth of shares (which is 1.3% 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 Do The Broadcom Insider Transactions Indicate?

Insiders sold Broadcom shares recently, but they didn't buy any. Despite some insider buying, the longer term picture doesn't make us feel much more positive. While insiders do own a lot of shares in the company (which is good), our analysis of their transactions doesn't make us feel confident about the company. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Broadcom. At Simply Wall St, we found 4 warning signs for Broadcom that deserve your attention before buying any shares.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com