It is not uncommon to see companies perform well in the years after insiders buy shares. 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 shareholders might well want to know whether insiders have been buying or selling shares in Infinera Corporation (NASDAQ:INFN).
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 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. As Peter Lynch said, 'insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise'.
Infinera Insider Transactions Over The Last Year
In the last twelve months, the biggest single sale by an insider was when the Founder, David Welch, sold US$408k worth of shares at a price of US$8.16 per share. That means that even when the share price was below the current price of US$9.79, 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. This single sale was just 3.2% of David Welch's stake.
Over the last year we saw more insider selling of Infinera shares, than buying. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
I will like Infinera better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Does Infinera Boast High Insider Ownership?
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. We usually like to see fairly high levels of insider ownership. Infinera insiders own about US$43m worth of shares. That equates to 2.3% of the company. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
So What Does This Data Suggest About Infinera Insiders?
The fact that there have been no Infinera insider transactions recently certainly doesn't bother us. We don't take much encouragement from the transactions by Infinera insiders. The modest level of insider ownership is, at least, some comfort. 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. At Simply Wall St, we found 4 warning signs for Infinera that deserve your attention before buying any shares.
Of course Infinera may not be the best stock to buy. So you may wish to see this free collection of high quality 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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