It is not uncommon to see companies perform well in the years after insiders buy shares. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So shareholders might well want to know whether insiders have been buying or selling shares in Simulations Plus, Inc. (NASDAQ:SLP).
What Is Insider Selling?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, most countries require that the company discloses such transactions to the market.
Insider transactions are not the most important thing when it comes to long-term investing. But it is perfectly logical to keep tabs on what insiders are doing. As Peter Lynch said, 'insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.
The Last 12 Months Of Insider Transactions At Simulations Plus
The Director, David Ralph, made the biggest insider sale in the last 12 months. That single transaction was for US$68k worth of shares at a price of US$22.74 each. So it's clear an insider wanted to take some cash off the table, even below the current price of US$34.12. 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. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. It is worth noting that this sale was only 14% of David Ralph's holding.
We note that in the last year insiders divested 3690 shares for a total of US$94k. Insiders in Simulations Plus didn't buy any shares in the last year. 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!
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Simulations Plus Insiders Are Selling The Stock
We have seen a bit of insider selling at Simulations Plus, over the last three months. Director John Paglia divested only US$26k worth of shares in that time. It's not great to see insider selling, nor the lack of recent buyers. But the volume sold is so low that it really doesn't bother us.
Does Simulations Plus Boast High Insider Ownership?
Many investors like to check how much of a company is owned by insiders. I reckon it's a good sign if insiders own a significant number of shares in the company. Simulations Plus insiders own 30% of the company, currently worth about US$179m based on the recent share price. 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 Does This Data Suggest About Simulations Plus Insiders?
Our data shows a little more insider selling, but no insider buying, in the last three months. But given the selling was modest, we're not worried. It's great to see high levels of insider ownership, but looking back at the last year, we don't gain confidence from the Simulations Plus insiders selling. 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.
But note: Simulations Plus 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.