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Should You Take Comfort From Insider Transactions At Transocean Ltd. (NYSE:RIG)?

Simply Wall St

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 shareholders might well want to know whether insiders have been buying or selling shares in Transocean Ltd. (NYSE:RIG).

What Is Insider Buying?

Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock in the 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. 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'.

See our latest analysis for Transocean

The Last 12 Months Of Insider Transactions At Transocean

Over the last year, we can see that the biggest insider purchase was by Executive VP Howard Davis for US$623k worth of shares, at about US$6.35 per share. That means that an insider was happy to buy shares at above the current price of US$3.01. It's very possible they regret the purchase, but it's more likely they are bullish about the company. To us, it's very important to consider the price insiders pay for shares. As a general rule, we feel more positive about a stock if insiders have bought shares at above current prices, because that suggests they viewed the stock as good value, even at a higher price. We note that Howard Davis was both the biggest buyer and the biggest seller.

Happily, we note that in the last year insiders paid US$1.0m for 185.25k shares. On the other hand they divested 98049 shares, for US$620k. In total, Transocean insiders bought more than they sold over the last year. Their average price was about US$5.55. This is nice to see since it implies that insiders might see value around current prices. The chart below shows insider transactions (by individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!

NYSE:RIG Recent Insider Trading, February 28th 2020

Transocean is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Transocean Insiders Bought Stock Recently

Over the last three months, we've seen significant insider buying at Transocean. Not only was there no selling that we can see, but they collectively bought US$144k worth of shares. This could be interpreted as suggesting a positive outlook.

Does Transocean Boast High Insider Ownership?

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. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Transocean insiders own about US$123m worth of shares (which is 5.9% of the company). Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.

So What Do The Transocean Insider Transactions Indicate?

It's certainly positive to see the recent insider purchases. And the longer term insider transactions also give us confidence. However, we note that the company didn't make a profit over the last twelve months, which makes us cautious. Once you factor in the high insider ownership, it certainly seems like insiders are positive about Transocean. That's what I like to see! Of course, the future is what matters most. So if you are interested in Transocean, you should check out this free report on analyst forecasts for the company.

But note: Transocean 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.