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Having purchased US$1.9m worth of Compass Diversified (NYSE:CODI) stock, the recent 7.4% pullback is not what insiders may have expected

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·3 min read
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The recent price decline of 7.4% in Compass Diversified's (NYSE:CODI) stock may have disappointed insiders who bought US$1.9m worth of shares at an average price of US$28.33 in the past 12 months. Insiders buy with the expectation to see their investments rise in value over a period of time. However, recent losses have rendered their above investment worth US$1.5m which is not ideal.

Although we don't think shareholders should simply follow insider transactions, logic dictates you should pay some attention to whether insiders are buying or selling shares.

See our latest analysis for Compass Diversified

The Last 12 Months Of Insider Transactions At Compass Diversified

In the last twelve months, the biggest single purchase by an insider was when Independent Director Gordon Burns bought US$769k worth of shares at a price of US$27.47 per share. So it's clear an insider wanted to buy, even at a higher price than the current share price (being US$23.06). It's very possible they regret the purchase, but it's more likely they are bullish about the company. In our view, the price an insider pays for shares is very important. It is generally more encouraging if they paid above the current price, as it suggests they saw value, even at higher levels.

Compass Diversified insiders may have bought shares in the last year, but they didn't sell any. You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

insider-trading-volume
insider-trading-volume

There are always plenty of stocks that insiders are buying. So if that suits your style you could check each stock one by one or you could take a look at this free list of companies. (Hint: insiders have been buying them).

Compass Diversified Insiders Bought Stock Recently

Over the last quarter, Compass Diversified insiders have spent a meaningful amount on shares. Not only was there no selling that we can see, but they collectively bought US$618k worth of shares. This is a positive in our book as it implies some confidence.

Insider Ownership

Many investors like to check how much of a company is owned by insiders. We usually like to see fairly high levels of insider ownership. Insiders own 2.5% of Compass Diversified shares, worth about US$38m. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.

So What Do The Compass Diversified Insider Transactions Indicate?

It's certainly positive to see the recent insider purchases. 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. Insiders likely see value in Compass Diversified shares, given these transactions (along with notable insider ownership of the company). In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Compass Diversified. Every company has risks, and we've spotted 2 warning signs for Compass Diversified you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.