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 before you buy or sell FormFactor, Inc. (NASDAQ:FORM), you may well want to know whether insiders have been buying or selling.
Do Insider Transactions Matter?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. 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 Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year.
FormFactor Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider sale was by the Independent Director, Michael Zellner, for US$314k worth of shares, at about US$17.43 per share. That means that an insider was selling shares at slightly below the current price (US$20.34). As a general rule we consider it to be discouraging when insiders are selling below the current price, because it suggests they were happy with a lower valuation. However, while insider selling is sometimes discouraging, it's only a weak signal. This single sale was just 35% of Michael Zellner's stake.
Over the last year, we note insiders sold 44400 shares worth US$732k. In the last year FormFactor insiders didn't buy any company stock. 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!
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
FormFactor Insiders Are Selling The Stock
The last quarter saw substantial insider selling of FormFactor shares. In total, insiders dumped US$366k 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.
Does FormFactor Boast High Insider Ownership?
Many investors like to check how much of a company is owned by insiders. We usually like to see fairly high levels of insider ownership. It appears that FormFactor insiders own 1.2% of the company, worth about US$19m. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
So What Does This Data Suggest About FormFactor Insiders?
Insiders sold stock recently, but they haven't been buying. And even if we look to the last year, we didn't see any purchases. On the plus side, FormFactor makes money, and is growing profits. Insiders own shares, but we're still pretty cautious, given the history of sales. We're in no rush to buy! 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 FormFactor may not be the best stock to buy. So you may wish to see this free collection of high quality companies.
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.
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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.