We often see insiders buying up shares in companies that perform well over the long term. On the other hand, we'd be remiss not to mention that insider sales have been known to precede tough periods for a business. So we'll take a look at whether insiders have been buying or selling shares in The AES Corporation (NYSE:AES).
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, 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. As Peter Lynch said, 'insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.
The Last 12 Months Of Insider Transactions At AES
Over the last year, we can see that the biggest insider purchase was by Chairman & Lead Independent Director John Morse for US$130k worth of shares, at about US$12.99 per share. That means that an insider was happy to buy shares at above the current price of US$12.70. While their view may have changed since the purchase was made, this does at least suggest they have had confidence in the company's future. In our view, the price an insider pays for shares is very important. Generally speaking, it catches our eye when insiders have purchased shares at above current prices, as it suggests they believed the shares were worth buying, even at a higher price.
In the last twelve months insiders purchased 52.74k shares for US$541k. But insiders sold 6000 shares worth US$92k. In the last twelve months there was more buying than selling by AES insiders. The average buy price was around US$10.26. It's great to see insiders putting their own cash into the company's stock, albeit at below the recent share price. You can see the insider transactions (by individuals) over the last year depicted in the chart below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
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).
AES Insiders Bought Stock Recently
Over the last three months, we've seen significant insider buying at AES. In total, insiders bought US$541k worth of shares in that time, and we didn't record any sales whatsoever. This could be interpreted as suggesting a positive outlook.
Insider Ownership of AES
For a common shareholder, it is worth checking how many shares are held by company 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. It appears that AES insiders own 0.4% of the company, worth about US$32m. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
So What Do The AES Insider Transactions Indicate?
It's certainly positive to see the recent insider purchases. And the longer term insider transactions also give us confidence. Given that insiders also own a fair bit of AES we think they are probably pretty confident of a bright future. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing AES. To help with this, we've discovered 5 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in AES.
But note: AES 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 email@example.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.
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