We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. On the other hand, we'd be remiss not to mention that insider sales have been known to precede tough periods for a business. So before you buy or sell CMC Materials, Inc. (NASDAQ:CCMP), you may well want to know whether insiders have been buying or selling.
What Is Insider Selling?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, rules govern insider transactions, and certain disclosures are required.
We don't think shareholders should simply follow insider transactions. 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'.
CMC Materials Insider Transactions Over The Last Year
The Independent Chairman of the Board, William Noglows, made the biggest insider sale in the last 12 months. That single transaction was for US$1.5m worth of shares at a price of US$162 each. That means that an insider was selling shares at slightly below the current price (US$170). 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. This single sale was just 12% of William Noglows's stake.
CMC Materials insiders didn't buy any shares over the last year. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
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Insider Ownership of CMC Materials
For a common shareholder, it is worth checking how many shares are held by company 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. It appears that CMC Materials insiders own 0.9% of the company, worth about US$46m. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
What Might The Insider Transactions At CMC Materials Tell Us?
There haven't been any insider transactions in the last three months -- that doesn't mean much. Still, the insider transactions at CMC Materials in the last 12 months are not very heartening. The modest level of insider ownership is, at least, some comfort. 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. In terms of investment risks, we've identified 1 warning sign with CMC Materials and understanding it should be part of your investment process.
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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, but not derivative transactions.
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