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 shareholders might well want to know whether insiders have been buying or selling shares in Technology One Limited (ASX:TNE).
Do Insider Transactions Matter?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a 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 logic dictates you should pay some attention to whether insiders are buying or selling shares. For example, a Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year.'
The Last 12 Months Of Insider Transactions At Technology One
Over the last year, we can see that the biggest insider sale was by the Non-Executive Director, John MacTaggart, for AU$22m worth of shares, at about AU$5.55 per share. That means that even when the share price was below the current price of AU$7.66, an insider wanted to cash in some shares. 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. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. It is worth noting that this sale was only 9.3% of John MacTaggart's holding.
All up, insiders sold more shares in Technology One than they bought, over the last year. The chart below shows insider transactions (by individuals) over the last year. If you want to know exactly who sold, for how much, and when, simply click on the graph below!
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Insiders at Technology One Have Sold Stock Recently
There was substantially more insider selling, than buying, of Technology One shares over the last three months. In that time, Independent Non-Executive Director Kevin Blinco dumped AU$485k worth of shares. On the flip side, Independent Non-Executive Director Sharon Doyle spent AU$100k on purchasing shares (as mentioned above). Generally this level of net selling might be considered a bit bearish.
I like to look at how many shares insiders own in a company, to help inform my view of how aligned they are with insiders. We usually like to see fairly high levels of insider ownership. Technology One insiders own 22% of the company, currently worth about AU$536m 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 Does This Data Suggest About Technology One Insiders?
The insider sales have outweighed the insider buying, at Technology One, in the last three months. Despite some insider buying, the longer term picture doesn't make us feel much more positive. But since Technology One is profitable and growing, we're not too worried by this. While insiders do own a lot of shares in the company (which is good), our analysis of their transactions doesn't make us feel confident about the company. Therefore, you should should definitely take a look at this FREE report showing analyst forecasts for Technology One.
But note: Technology One 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.
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 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. Thank you for reading.