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 we'll take a look at whether insiders have been buying or selling shares in Eton Pharmaceuticals, Inc. (NASDAQ:ETON).
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 in the 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 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'.
Eton Pharmaceuticals Insider Transactions Over The Last Year
President Sean Brynjelsen made the biggest insider purchase in the last 12 months. That single transaction was for US$79k worth of shares at a price of US$7.96 each. That means that even when the share price was higher than US$7.10 (the recent price), an insider wanted to purchase shares. Their view may have changed since then, but at least it shows they felt optimistic at the time. To us, it's very important to consider the price insiders pay for shares. As a general rule, we feel more positive about a stock if insiders have bought shares at above current prices, because that suggests they viewed the stock as good value, even at a higher price.
Eton Pharmaceuticals insiders may have bought shares in the last year, but they didn't sell any. They paid about US$7.11 on average. These transactions suggest that insiders have considered the current price attractive. The chart below shows insider transactions (by individuals) over the last year. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Eton Pharmaceuticals is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Does Eton Pharmaceuticals 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 Eton Pharmaceuticals insiders own 18% of the company, worth about US$22m. While this is a strong but not outstanding level of insider ownership, it's enough to indicate some alignment between management and smaller shareholders.
So What Does This Data Suggest About Eton Pharmaceuticals Insiders?
It doesn't really mean much that no insider has traded Eton Pharmaceuticals shares in the last quarter. On a brighter note, the transactions over the last year are encouraging. Overall we don't see anything to make us think Eton Pharmaceuticals insiders are doubting the company, and they do own shares. Of course, the future is what matters most. So if you are interested in Eton Pharmaceuticals, you should check out this free report on analyst forecasts for the company.
But note: Eton Pharmaceuticals 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.
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.
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