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 BorgWarner Inc. (NYSE:BWA).
Do Insider Transactions Matter?
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 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 BorgWarner
In the last twelve months, the biggest single sale by an insider was when Executive VP & Chief Strategy Officer Brady Ericson sold US$666k worth of shares at a price of US$39.70 per share. So what is clear is that an insider saw fit to sell at around the current price of US$38.70. They could have a variety of motivations for selling, but it’s still not particularly encouraging to see. We usually pause to reflect on the potential that a stock has a high valuation, if insiders have been selling at around the current price.
In the last twelve months insiders purchased 5.64k shares for US$218k. But they sold 46.33k for US$1.9m. Over the last year we saw more insider selling of BorgWarner shares, than buying. The average sell price was around US$40.66. It’s not particularly great to see insiders were selling shares around current prices. But we don’t put too much weight on the insider selling, since sellers could have personal reasons. You can see a visual depiction of insider transactions (by 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!
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BorgWarner Insiders Are Selling The Stock
There was substantially more insider selling, than buying, of BorgWarner shares over the last three months. In that time, insiders dumped US$1.5m worth of shares. Meanwhile insiders bought US$218k worth, as we said above. Since the selling really does outweigh the buying, we’d say that these transactions may suggest that some insiders feel the shares are not cheap.
I like to look at how many shares insiders own in a company, to help inform my view of how aligned they are with 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. BorgWarner insiders own about US$52m worth of shares. That equates to 0.7% 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 BorgWarner Tell Us?
Unfortunately, there has been more insider selling of BorgWarner stock, than buying, in the last three months. Zooming out, the longer term picture doesn’t give us much comfort. But it is good to see that BorgWarner is growing earnings. Insider ownership isn’t particularly high, so this analysis makes us cautious about the company. So we’d only buy after careful consideration. Of course, the future is what matters most. So if you are interested in BorgWarner, you should check out this free report on analyst forecasts for the company.
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To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.