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We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. 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 before you buy or sell New Relic, Inc. (NYSE:NEWR), you may well want to know whether insiders have been buying or selling.
What Is Insider Selling?
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, 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 Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year'.
The Last 12 Months Of Insider Transactions At New Relic
In the last twelve months, the biggest single purchase by an insider was when insider Michael Christenson bought US$510k worth of shares at a price of US$56.72 per share. Although we like to see insider buying, we note that this large purchase was at significantly below the recent price of US$64.72. Because the shares were purchased at a lower price, this particular buy doesn't tell us much about how insiders feel about the current share price.
In the last twelve months New Relic insiders were buying shares, but not selling. 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!
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Insider Ownership of New Relic
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. A high insider ownership often makes company leadership more mindful of shareholder interests. New Relic insiders own 11% of the company, currently worth about US$439m 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 Do The New Relic Insider Transactions Indicate?
It doesn't really mean much that no insider has traded New Relic shares in the last quarter. However, our analysis of transactions over the last year is heartening. Judging from their transactions, and high insider ownership, New Relic insiders feel good about the company's future. While we like knowing what's going on with the insider's ownership and transactions, we make sure to also consider what risks are facing a stock before making any investment decision. Every company has risks, and we've spotted 2 warning signs for New Relic you should know about.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity 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.
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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