It is not uncommon to see companies perform well in the years after insiders buy shares. 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 we’ll take a look at whether insiders have been buying or selling shares in RH (NYSE:RH).
Do Insider Transactions Matter?
It’s quite normal to see company insiders, such as board members, trading in company stock, from time to time. However, most countries require that the company discloses such transactions to the market.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But equally, we would consider it foolish to ignore insider transactions altogether. For example, a Columbia 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’.
RH Insider Transactions Over The Last Year
In the last twelve months, the biggest single sale by an insider was when President Eri Chaya sold US$1.1m worth of shares at a price of US$151 per share. So it’s clear an insider wanted to take some cash off the table, even slightly below the current price of US$152. Even though it doesn’t necessarily mean anything, that’s certainly not a positive sign, in our book. We generally consider it a negative if insiders have been selling on market, especially if they did so below the current price. It is worth noting that this sale was only 15.6% of Eri Chaya’s holding.
All up, insiders sold more shares in RH than they bought, over the last year. They sold for an average price of about US$125. It’s not particularly great to see insiders were selling shares at below recent prices. Since insiders sell for many reasons, we wouldn’t put too much weight on it. 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!
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Insider Ownership of RH
For a common shareholder, it is worth checking how many shares are held by company 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. RH insiders own about US$387m worth of shares (which is 12% of the company). Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.
So What Do The RH Insider Transactions Indicate?
It doesn’t really mean much that no insider has traded RH shares in the last quarter. It’s heartening that insiders own plenty of stock, but we’d like to see more insider buying, since the last year of RH insider transactions don’t fill us with confidence. Of course, the future is what matters most. So if you are interested in RH, you should check out this free report on analyst forecasts for the company.
But note: RH 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.
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