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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 shareholders might well want to know whether insiders have been buying or selling shares in First Merchants Corporation (NASDAQ:FRME).
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 on the market. However, most countries require that the company discloses such transactions to the market.
We don't think shareholders should simply follow insider transactions. But equally, we would consider it foolish to ignore insider transactions altogether. 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 First Merchants
In the last twelve months, the biggest single sale by an insider was when the , Michael Marhenke, sold US$1.3m worth of shares at a price of US$49.21 per share. While insider selling is a negative, to us, it is more negative if the shares are sold at a lower price. It's of some comfort that this sale was conducted at a price well above the current share price, which is US$37.81. So it may not tell us anything about how insiders feel about the current share price.
Over the last year, we can see that insiders have bought 1598.49 shares worth US$59k. On the other hand they divested 45680 shares, for US$2.2m. In total, First Merchants insiders sold more than they bought over the last year. You can see the insider transactions (by individuals) over the last year depicted in the chart below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!
If you like to buy stocks that insiders are buying, rather than selling, then you might just love this free list of companies. (Hint: insiders have been buying them).
Insiders at First Merchants Have Sold Stock Recently
Over the last three months, we've seen notably more insider selling, than insider buying, at First Merchants. We note Chairman of the Board Charles Schalliol cashed in US$170k worth of shares. On the flip side, insiders spent US$4.3k on purchasing shares. Because the selling vastly outweighs the buying, we'd say this is a somewhat bearish sign.
Does First Merchants Boast High Insider Ownership?
Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. I reckon it's a good sign if insiders own a significant number of shares in the company. It appears that First Merchants insiders own 1.2% of the company, worth about US$22m. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
So What Does This Data Suggest About First Merchants Insiders?
The stark truth for First Merchants is that there has been more insider selling than insider buying in the last three months. Zooming out, the longer term picture doesn't give us much comfort. But since First Merchants is profitable and growing, we're not too worried by this. While insiders do own shares, they don't own a heap, and they have been selling. So we'd only buy after careful consideration. If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.
But note: First Merchants 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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.