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We often see insiders buying up shares in companies that perform well over the long term. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So we'll take a look at whether insiders have been buying or selling shares in Verastem, Inc. (NASDAQ:VSTM).
Do Insider Transactions Matter?
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.
We don't think shareholders should simply follow insider transactions. But it is perfectly logical to keep tabs on what insiders are doing. For example, a Columbia University study found that 'insiders are more likely to engage in open market purchases of their own company’s stock when the firm is about to reveal new agreements with customers and suppliers'.
The Last 12 Months Of Insider Transactions At Verastem
Over the last year, we can see that the biggest insider purchase was by Independent Director Timothy Barberich for US$109k worth of shares, at about US$2.17 per share. That means that an insider was happy to buy shares at around the current price of US$2.26. That means they have been optimistic about the company in the past, though they may have changed their mind. If someone buys shares at well below current prices, it's a good sign on balance, but keep in mind they may no longer see value. In this case we're pleased to report that the insider bought shares at close to current prices. Timothy Barberich was the only individual insider to buy during the last year.
The chart below shows insider transactions (by companies and individuals) over the last year. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Verastem is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Does Verastem 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. A high insider ownership often makes company leadership more mindful of shareholder interests. Our data suggests Verastem insiders own 0.4% of the company, worth about US$1.5m. We prefer to see high levels of insider ownership.
So What Does This Data Suggest About Verastem Insiders?
It's certainly positive to see the recent insider purchase. We also take confidence from the longer term picture of insider transactions. But we don't feel the same about the fact the company is making losses. We would certainly prefer see higher levels of insider ownership but analysis of the insider transactions suggests that Verastem insiders are expecting a bright future. 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. To help with this, we've discovered 3 warning signs (1 can't be ignored!) that you ought to be aware of before buying any shares in Verastem.
But note: Verastem 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. We currently account for open market transactions and private dispositions, but not derivative transactions.
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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