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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 we'll take a look at whether insiders have been buying or selling shares in Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM).
What Is Insider Buying?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, rules govern insider transactions, and certain disclosures are required.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But logic dictates you should pay some attention to whether insiders are buying or selling shares. 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 Rhythm Pharmaceuticals
In the last twelve months, the biggest single purchase by an insider was when Chairman David Meeker bought US$202k worth of shares at a price of US$20.17 per share. That means that even when the share price was higher than US$19.88 (the recent price), an insider wanted to purchase shares. It's very possible they regret the purchase, but it's more likely they are bullish about the company. To us, it's very important to consider the price insiders pay for shares. As a general rule, we feel more positive about a stock when an insider has bought shares at above current prices, because that suggests they viewed the stock as good value, even at a higher price. David Meeker was the only individual insider to buy during the last year.
The chart below shows insider transactions (by companies and individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!
Rhythm Pharmaceuticals is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Insider Ownership of Rhythm Pharmaceuticals
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. Rhythm Pharmaceuticals insiders own about US$30m worth of shares. That equates to 3.0% of the company. 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 Rhythm Pharmaceuticals Tell Us?
There haven't been any insider transactions in the last three months -- that doesn't mean much. But insiders have shown more of an appetite for the stock, over the last year. Insiders do have a stake in Rhythm Pharmaceuticals and their transactions don't cause us concern. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Rhythm Pharmaceuticals. At Simply Wall St, we've found that Rhythm Pharmaceuticals has 3 warning signs (1 can't be ignored!) that deserve your attention before going any further with your analysis.
But note: Rhythm Pharmaceuticals 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.
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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