We often see insiders buying up shares in companies that perform well over the long term. 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 Power Integrations, Inc. (NASDAQ:POWI).
What Is Insider Selling?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, such insiders must disclose their trading activities, and not trade on inside information.
We don't think shareholders should simply follow insider transactions. 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.'
Power Integrations Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider sale was by the CFO & VP of Finance, Sandeep Nayyar, for US$1.8m worth of shares, at about US$90.50 per share. So it's clear an insider wanted to take some cash off the table, even slightly below the current price of US$91.62. When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. However, while insider selling is sometimes discouraging, it's only a weak signal. This single sale was just 25.8% of Sandeep Nayyar's stake.
Over the last year we saw more insider selling of Power Integrations shares, than buying. The average sell price was around US$75.81. It's not too encouraging to see that insiders have sold at below the current price. But we wouldn't put too much weight on the insider selling. You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Power Integrations Insiders Are Selling The Stock
Over the last three months, we've seen significant insider selling at Power Integrations. In total, insiders dumped US$4.1m worth of shares in that time, and we didn't record any purchases whatsoever. This may suggest that some insiders think that the shares are not cheap.
Many investors like to check how much of a company is owned by insiders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Power Integrations insiders own 3.8% of the company, currently worth about US$103m 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 Power Integrations Insider Transactions Indicate?
Insiders sold stock recently, but they haven't been buying. Zooming out, the longer term picture doesn't give us much comfort. But since Power Integrations is profitable and growing, we're not too worried by this. The company boasts high insider ownership, but we're a little hesitant, given the history of share sales. Therefore, you should should definitely take a look at this FREE report showing analyst forecasts for Power Integrations.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity 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.
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.