We often see insiders buying up shares in companies that perform well over the long term. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So before you buy or sell Bega Cheese Limited (ASX:BGA), you may well want to know whether insiders have been buying or selling.
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, such insiders must disclose their trading activities, and not trade on inside information.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But equally, we would consider it foolish to ignore insider transactions altogether. For example, a Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year'.
Bega Cheese Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider sale was by the Non-Executive Director, Richard Cross, for AU$90k worth of shares, at about AU$4.51 per share. That means that even when the share price was below the current price of AU$5.22, 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. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. This single sale was just 9.5% of Richard Cross's stake. Richard Cross was the only individual insider to sell shares in the last twelve months.
In the last twelve months insiders purchased 24.09k shares for AU$116k. On the other hand they divested 20.06k shares, for AU$90k. In total, Bega Cheese insiders bought more than they sold over the last year. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Bega Cheese is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Bega Cheese Insiders Bought Stock Recently
Over the last quarter, Bega Cheese insiders have spent a meaningful amount on shares. Overall, five insiders shelled out AU$115k for shares in the company -- and none sold. This is a positive in our book as it implies some confidence.
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. It appears that Bega Cheese insiders own 2.9% of the company, worth about AU$46m. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
What Might The Insider Transactions At Bega Cheese Tell Us?
It's certainly positive to see the recent insider purchases. We also take confidence from the longer term picture of insider transactions. When combined with notable insider ownership, these factors suggest Bega Cheese insiders are well aligned, and that they may think the share price is too low. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Bega Cheese. Every company has risks, and we've spotted 1 warning sign for Bega Cheese 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.
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. 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.
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