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 NewMarket Corporation (NYSE:NEU).
What Is Insider Selling?
It’s quite normal to see company insiders, such as board members, trading in company stock, from time to time. 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 Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year.’
NewMarket Insider Transactions Over The Last Year
In the last twelve months, the biggest single sale by an insider was when Chairman Thomas Gottwald sold US$4.8m worth of shares at a price of US$441 per share. So we know that an insider sold shares at around the present share price of US$439. They might be selling for a variety of reasons, but it’s hard to argue this is a bullish sign. Arguably, insider selling at around current prices should give us reason to reflect on whether the stock is fully valued at the moment.
In total, NewMarket insiders sold more than they bought over the last year. The sellers received a price of around US$438, on average. It’s not particularly great to see insiders were selling shares at below recent prices. Since insiders sell for many reasons, we wouldn’t put too much weight on it. You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
I will like NewMarket better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Insiders at NewMarket Have Sold Stock Recently
Over the last three months, we’ve seen significant insider selling at NewMarket. Specifically, insiders ditched US$5.0m 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.
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. NewMarket insiders own 34% of the company, currently worth about US$1.6b based on the recent share price. I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.
So What Do The NewMarket Insider Transactions Indicate?
Insiders sold NewMarket shares recently, but they didn’t buy any. Despite some insider buying, the longer term picture doesn’t make us feel much more positive. On the plus side, NewMarket makes money, and is growing profits. It is good to see high insider ownership, but the insider selling leaves us cautious. Along with insider transactions, I recommend checking if NewMarket is growing revenue. This free chart of historic revenue and earnings should make that easy.
Of course NewMarket may not be the best stock to buy. So you may wish to see this free collection of high quality companies.
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