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We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. 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 GigaMedia Limited (NASDAQ:GIGM).
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 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'.
GigaMedia Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider purchase was by Chairman Cheng-Ming Huang for US$270k worth of shares, at about US$2.49 per share. Even though the purchase was made at a significantly lower price than the recent price (US$3.20), we still think insider buying is a positive. While it does suggest insiders consider the stock undervalued at lower prices, this transaction doesn't tell us much about what they think of current prices.
Cheng-Ming Huang bought 200.50k shares over the last 12 months at an average price of US$2.64. 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!
There are always plenty of stocks that insiders are buying. So if that suits your style you could check each stock one by one or you could take a look at this free list of companies. (Hint: insiders have been buying them).
Does GigaMedia Boast High Insider Ownership?
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. GigaMedia insiders own about US$19m worth of shares (which is 53% of the company). 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 GigaMedia Tell Us?
It doesn't really mean much that no insider has traded GigaMedia shares in the last quarter. However, our analysis of transactions over the last year is heartening. It would be great to see more insider buying, but overall it seems like GigaMedia insiders are reasonably well aligned (owning significant chunk of the company's shares) and optimistic for the future. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing GigaMedia. Every company has risks, and we've spotted 2 warning signs for GigaMedia you should know about.
But note: GigaMedia 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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