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It is not uncommon to see companies perform well in the years after insiders buy shares. 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 The AES Corporation (NYSE:AES), you may well want to know whether insiders have been buying or selling.
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.
We don't think shareholders should simply follow insider transactions. 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'.
AES Insider Transactions Over The Last Year
In the last twelve months, the biggest single purchase by an insider was when Chairman & Lead Independent Director John Morse bought US$130k worth of shares at a price of US$12.99 per share. Although we like to see insider buying, we note that this large purchase was at significantly below the recent price of US$20.98. Because it occurred at a lower valuation, it doesn't tell us much about whether insiders might find today's price attractive.
In the last twelve months AES insiders were buying shares, but not selling. They paid about US$10.26 on average. To my mind it is good that insiders have invested their own money in the company. However, we do note that they were buying at significantly lower prices than today's share price. You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. 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 AES 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. It appears that AES insiders own 0.2% of the company, worth about US$35m. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
So What Do The AES Insider Transactions Indicate?
The fact that there have been no AES insider transactions recently certainly doesn't bother us. On a brighter note, the transactions over the last year are encouraging. Insiders do have a stake in AES and their transactions don't cause us concern. 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. Our analysis shows 2 warning signs for AES (1 can't be ignored!) and we strongly recommend you look at these before investing.
Of course AES 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.
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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