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 we’ll take a look at whether insiders have been buying or selling shares in National HealthCare Corporation (NYSEMKT:NHC).
What Is Insider Selling?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, most countries require that the company discloses such transactions to the market.
We don’t think shareholders should simply follow insider transactions. But logic dictates you should pay some attention to whether insiders are buying or selling shares. 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 National HealthCare
In the last twelve months, the biggest single sale by an insider was when John Lines sold US$723k worth of shares at a price of US$77.30 per share. So it’s clear an insider wanted to take some cash off the table, even slightly below the current price of US$78.56. Even though it doesn’t necessarily mean anything, that’s certainly not a positive sign, in our book. We generally consider it a negative if insiders have been selling on market, especially if they did so below the current price. We note that the biggest single sale was only 27.7% of John Lines’s holding.
Over the last year, we note insiders sold 33.82k shares worth US$2.6m. Over the last year we saw more insider selling of National HealthCare shares, than buying. The average sell price was around US$76.01. We don’t gain much confidence from insider selling near the recent share price. But we don’t put too much weight on the insider selling, since sellers could have personal reasons. 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!
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National HealthCare Insiders Are Selling The Stock
Over the last three months, we’ve seen significant insider selling at National HealthCare. In total, Independent Director Ernest Burgess sold US$157k worth of shares in that time, and we didn’t record any purchases whatsoever. Overall this makes us a bit cautious, but it’s not the be all and end all.
Does National HealthCare 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. National HealthCare insiders own 21% of the company, currently worth about US$254m based on the recent share price. I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.
So What Do The National HealthCare Insider Transactions Indicate?
An insider sold stock recently, but they haven’t been buying. And even if we look to the last year, we didn’t see any purchases. On the plus side, National HealthCare makes money, and is growing profits. The company boasts high insider ownership, but we’re a little hesitant, given the history of share sales. Along with insider transactions, I recommend checking if National HealthCare is growing revenue. This free chart of historic revenue and earnings should make that easy.
But note: National HealthCare 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.
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