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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 Alliance Data Systems Corporation (NYSE:ADS).
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, such insiders must disclose their trading activities, and not trade on inside information.
We don't think shareholders should simply follow insider transactions. But logic dictates you should pay some attention to whether insiders are buying or selling shares. 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'.
The Last 12 Months Of Insider Transactions At Alliance Data Systems
The Independent Director John Gerspach made the biggest insider purchase in the last 12 months. That single transaction was for US$411k worth of shares at a price of US$68.46 each. Although we like to see insider buying, we note that this large purchase was at significantly below the recent price of US$98.43. Because it occurred at a lower valuation, it doesn't tell us much about whether insiders might find today's price attractive.
The chart below shows insider transactions (by companies and individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!
Alliance Data Systems is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Alliance Data Systems Insiders Are Selling The Stock
The last quarter saw substantial insider selling of Alliance Data Systems shares. Specifically, Senior VP & Chief Accounting Officer Laura Santillan ditched US$145k 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 insiders think that the shares are a bargain.
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. Alliance Data Systems insiders own about US$144m worth of shares (which is 2.9% of the company). I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.
What Might The Insider Transactions At Alliance Data Systems Tell Us?
An insider sold stock recently, but they haven't been buying. In contrast, they appear keener if you look at the last twelve months. We are also comforted by the high levels of insider ownership. So the recent selling doesn't worry us. So while it's helpful to know what insiders are doing in terms of buying or selling, it's also helpful to know the risks that a particular company is facing. To that end, you should learn about the 5 warning signs we've spotted with Alliance Data Systems (including 2 which make us uncomfortable).
But note: Alliance Data Systems 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. We currently account for open market transactions and private dispositions, but not derivative transactions.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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