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We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So before you buy or sell Lumentum Holdings Inc. (NASDAQ:LITE), you may well want to know whether insiders have been buying or selling.
What Is Insider Buying?
It's quite normal to see company insiders, such as board members, trading in company stock, from time to time. However, such insiders must disclose their trading activities, and not trade on inside information.
Insider transactions are not the most important thing when it comes to long-term investing. But equally, we would consider it foolish to ignore insider transactions altogether. For example, a Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year.'
Lumentum Holdings Insider Transactions Over The Last Year
The Executive Vice President of Global Sales, Jason Reinhardt, made the biggest insider sale in the last 12 months. That single transaction was for US$482k worth of shares at a price of US$50.38 each. So it's clear an insider wanted to take some cash off the table, even below the current price of US$58.71. 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. It is worth noting that this sale was only 13% of Jason Reinhardt's holding.
In the last twelve months insiders netted US$2.2m for 38919 shares sold. Insiders in Lumentum Holdings 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 click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Insiders at Lumentum Holdings Have Sold Stock Recently
The last quarter saw substantial insider selling of Lumentum Holdings shares. In total, insiders sold US$769k worth of shares in that time, and we didn't record any purchases whatsoever. Overall this makes us a bit cautious, but it's not the be all and end all.
For a common shareholder, it is worth checking how many shares are held by company insiders. A high insider ownership often makes company leadership more mindful of shareholder interests. Insiders own 0.9% of Lumentum Holdings shares, worth about US$38m. 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 Lumentum Holdings Insider Transactions Indicate?
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. But since Lumentum Holdings is profitable and growing, we're not too worried by this. Insider ownership isn't particularly high, so this analysis makes us cautious about the company. 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.
But note: Lumentum Holdings 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.
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.