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We often see insiders buying up shares in companies that perform well over the long term. 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 we'll take a look at whether insiders have been buying or selling shares in Reliance Industries Limited (NSE:RELIANCE).
What Is Insider Selling?
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 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 Reliance Industries
In the last twelve months, the biggest single sale by an insider was when the , Jaidev Dayal, sold ₹63m worth of shares at a price of ₹1,271 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of ₹1,318. When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. Please do note, however, that sellers may have a variety of reasons for selling, so we don't know for sure what they think of the stock price. This single sale was 88.8% of Jaidev Dayal's stake.
Happily, we note that in the last year insiders paid ₹54m for 44550 shares. On the other hand they divested 609k shares, for ₹728m. All up, insiders sold more shares in Reliance Industries than they bought, over the last year. The chart below shows insider transactions (by individuals) 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 are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Reliance Industries Insiders Are Selling The Stock
Over the last three months, we've seen notably more insider selling, than insider buying, at Reliance Industries. We note insiders cashed in ₹72m worth of shares. On the flip side, insiders spent ₹22m on purchasing shares. Because the selling vastly outweighs the buying, we'd say this is a somewhat bearish sign.
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. A high insider ownership often makes company leadership more mindful of shareholder interests. Reliance Industries insiders own 0.9% of the company, currently worth about ₹70b based on the recent share price. I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.
So What Does This Data Suggest About Reliance Industries Insiders?
The stark truth for Reliance Industries is that there has been more insider selling than insider buying in the last three months. And our longer term analysis of insider transactions didn't bring confidence, either. But since Reliance Industries is profitable and growing, we're not too worried by this. While insiders do own a lot of shares in the company (which is good), our analysis of their transactions doesn't make us feel confident about the company. Of course, the future is what matters most. So if you are interested in Reliance Industries, you should check out this free report on analyst forecasts for the company.
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.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.