We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So we'll take a look at whether insiders have been buying or selling shares in Preferred Bank (NASDAQ:PFBC).
Do Insider Transactions Matter?
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, 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. 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.'
Preferred Bank Insider Transactions Over The Last Year
In the last twelve months, the biggest single sale by an insider was when the Chairman, Li Yu, sold US$500k worth of shares at a price of US$42.93 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of US$50.93. We generally consider it a negative if insiders have been selling on market, especially if they did so below the current price, because it implies that they considered a lower price to be reasonable. However, while insider selling is sometimes discouraging, it's only a weak signal. We note that the biggest single sale was only 1.5% of Li Yu's holding.
We note that in the last year insiders divested 30855 shares for a total of US$1.5m. In the last year Preferred Bank insiders didn't buy any company stock. 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 like to buy stocks that insiders are buying, rather than selling, then you might just love this free list of companies. (Hint: insiders have been buying them).
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 Preferred Bank insiders own 8.7% of the company, worth about US$67m. 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 Do The Preferred Bank Insider Transactions Indicate?
It doesn't really mean much that no insider has traded Preferred Bank shares in the last quarter. Still, the insider transactions at Preferred Bank in the last 12 months are not very heartening. But we do like the fact that insiders own a fair chunk of the company. 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 Preferred Bank 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 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 firstname.lastname@example.org. 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.