We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So before you buy or sell Rambus Inc. (NASDAQ:RMBS), you may well want to know whether insiders have been buying or selling.
What Is Insider Buying?
It's quite normal to see company insiders, such as board members, trading in company stock, from time to time. However, such insiders must disclose their trading activities, and not trade on inside information.
Insider transactions are not the most important thing when it comes to long-term investing. 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'.
The Last 12 Months Of Insider Transactions At Rambus
Over the last year, we can see that the biggest insider sale was by the Independent Director, Eric Stang, for US$258k worth of shares, at about US$14.74 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of US$15.75. 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. Please do note, however, that sellers may have a variety of reasons for selling, so we don't know for sure what they think of the stock price. We note that the biggest single sale was only 30% of Eric Stang's holding. The only individual insider seller over the last year was Eric Stang.
You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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. Insiders own 0.4% of Rambus shares, worth about US$6.8m, according to our data. Whilst better than nothing, we're not overly impressed by these holdings.
So What Does This Data Suggest About Rambus Insiders?
There haven't been any insider transactions in the last three months -- that doesn't mean much. Our analysis of Rambus insider transactions leaves us unenthusiastic. And we're not picking up on high enough insider ownership to give us any comfort. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Rambus. For instance, we've identified 2 warning signs for Rambus (1 doesn't sit too well with us) you should be aware of.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
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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