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 shareholders might well want to know whether insiders have been buying or selling shares in Elastic N.V. (NYSE:ESTC).
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, rules govern insider transactions, and certain disclosures are required.
We don't think shareholders should simply follow insider transactions. But equally, we would consider it foolish to ignore insider transactions altogether. 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'.
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Elastic Insider Transactions Over The Last Year
The Co-Founder & Non-Executive Director, Steven Schuurman, made the biggest insider sale in the last 12 months. That single transaction was for US$54m worth of shares at a price of US$82.45 each. That means that even when the share price was slightly below the current price of US$83.94, an insider wanted to cash in some shares. 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. We note that the biggest single sale was only 9.9% of Steven Schuurman's holding.
In the last twelve months insiders netted US$89m for 1.1m shares sold. Insiders in Elastic didn't buy any shares in the last year. 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!
If you like to buy stocks that insiders are buying, rather than selling, then you might just love this free list of companies. (Hint: insiders have been buying them).
Elastic Insiders Are Selling The Stock
The last three months saw significant insider selling at Elastic. Specifically, insiders ditched US$89m worth of shares in that time, and we didn't record any purchases whatsoever. In light of this it's hard to argue that all the insiders think that the shares are a bargain.
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. I reckon it's a good sign if insiders own a significant number of shares in the company. Elastic insiders own 21% of the company, currently worth about US$1.3b based on the recent share price. 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 Does This Data Suggest About Elastic Insiders?
Insiders haven't bought Elastic stock in the last three months, but there was some selling. Looking to the last twelve months, our data doesn't show any insider buying. While insiders do own a lot of shares in the company (which is good), our analysis of their transactions doesn't make us feel confident about the company. If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.
Of course Elastic may not be the best stock to buy. So you may wish to see this free collection of high quality companies.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.