We’ve lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. 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 First Merchants Corporation (NASDAQ:FRME), you may well want to know whether insiders have been buying or selling.
Do Insider Transactions Matter?
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 it is perfectly logical to keep tabs on what insiders are doing. For example, a Colombia University study found that ‘insiders are more likely to engage in open market purchases of their own company’s stock when the firm is about to reveal new agreements with customers and suppliers’.
The Last 12 Months Of Insider Transactions At First Merchants
Over the last year, we can see that the biggest insider sale was by Michael Marhenke for US$1.3m worth of shares, at about US$49.21 per share. So we know that an insider sold shares at around the present share price of US$39.02. They might be selling for a variety of reasons, but it’s hard to argue this is a bullish sign. 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 3.77k shares for US$162k. But they sold 49.37k for US$2.4m. All up, insiders sold more shares in First Merchants than they bought, over the last year. The average sell price was around US$48.13. It’s not ideal to see that insiders have sold at around the current price. Since insiders sell for many reasons, we wouldn’t put too much weight on it. The chart below shows insider transactions over the last year. 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 alongside management, 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 Michael Marhenke cashed in US$1.3m worth of shares. On the other hand we note insiders bought US$13k worth of shares. We don’t view these transactions as a positive sign.
Does First Merchants Boast High Insider Ownership?
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. It’s great to see that First Merchants insiders own 1.2% of the company, worth about US$23m. This kind of significant ownership by insiders does generally increase the chance that the company is run in the interest of all shareholders.
What Might The Insider Transactions At First Merchants Tell Us?
The stark truth for First Merchants is that there has been more insider selling than insider buying in the last three months. Despite some insider buying, the longer term picture doesn’t make us feel much more positive. But it is good to see that First Merchants is growing earnings. 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.
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.
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 email@example.com.