It is not uncommon to see companies perform well in the years after insiders buy shares. 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 shareholders might well want to know whether insiders have been buying or selling shares in FirstService Corporation (TSE:FSV).
What Is Insider Selling?
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 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.’
FirstService Insider Transactions Over The Last Year
Founder & Chairman of the Board Jay Hennick made the biggest insider sale in the last 12 months. That single transaction was for CA$36m worth of shares at a price of CA$91.00 each. That means that even when the share price was below the current price of CA$104, an insider wanted to cash in some shares. While sellers have a variety of reasons for selling, this isn’t particularly great to see. When an insider sells below the current price, it does tend to make us wonder about the current valuation. It is worth noting that this sale was only 20.8% of Jay Hennick’s holding.
In total, FirstService insiders sold more than they bought over the last year. The sellers received a price of around US$90.83, on average. It’s not particularly great to see insiders were selling shares around current prices. While some insiders have decided to take some money off the table, we wouldn’t put too much weight on this fact. 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!
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 FirstService Have Sold Stock Recently
Over the last three months, we’ve seen significant insider selling at FirstService. In total, Independent Director Frederick Reichheld dumped US$394k worth of shares in that time, and we didn’t record any purchases whatsoever. In light of this it’s hard to argue that all the directors think that the shares are a bargain.
Insider Ownership of FirstService
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. I reckon it’s a good sign if insiders own a significant number of shares in the company. FirstService insiders own 11% of the company, currently worth about CA$390m 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.
What Might The Insider Transactions At FirstService Tell Us?
An insider sold stock recently, but they haven’t been buying. And our longer term analysis of insider transactions didn’t bring confidence, either. But it is good to see that FirstService is growing earnings. It is good to see high insider ownership, but the insider selling leaves us cautious. 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.
Of course FirstService may not be the best stock to buy. So you may wish to see this free collection of high quality companies.
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.