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We often see insiders buying up shares in companies that perform well over the long term. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So we’ll take a look at whether insiders have been buying or selling shares in The Southern Company (NYSE:SO).
What Is Insider Selling?
Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock on the market. However, most countries require that the company discloses such transactions to the market.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But it is perfectly logical to keep tabs on what insiders are doing. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year.’
Southern Insider Transactions Over The Last Year
The , Christopher Womack, made the biggest insider sale in the last 12 months. That single transaction was for US$953k worth of shares at a price of US$50.36 each. That means that an insider was selling shares at slightly below the current price (US$56.36). 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. 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. This single sale was 60.9% of Christopher Womack’s stake.
Happily, we note that in the last year insiders paid US$164k for 3261 shares. But insiders sold 59293 shares worth US$2.9m. Over the last year we saw more insider selling of Southern shares, than buying. You can see the insider transactions (by individuals) over the last year depicted in the chart below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Insider Ownership of Southern
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. We usually like to see fairly high levels of insider ownership. Southern insiders own about US$67m worth of shares. That equates to 0.1% of the company. While this is a strong but not outstanding level of insider ownership, it’s enough to indicate some alignment between management and smaller shareholders.
What Might The Insider Transactions At Southern Tell Us?
There haven’t been any insider transactions in the last three months — that doesn’t mean much. We don’t take much encouragement from the transactions by Southern insiders. But we do like the fact that insiders own a fair chunk of the company. Of course, the future is what matters most. So if you are interested in Southern, you should check out this free report on analyst forecasts for the company.
But note: Southern may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.