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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 shareholders might well want to know whether insiders have been buying or selling shares in Cars.com, LLC (NYSE:CARS).
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, such insiders must disclose their trading activities, and not trade on inside information.
We don't think shareholders should simply follow insider transactions. 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'.
Cars.com Insider Transactions Over The Last Year
The Co-Founder T. Vetter made the biggest insider purchase in the last 12 months. That single transaction was for US$102k worth of shares at a price of US$8.50 each. Although we like to see insider buying, we note that this large purchase was at significantly below the recent price of US$13.25. Because the shares were purchased at a lower price, this particular buy doesn't tell us much about how insiders feel about the current share price.
Happily, we note that in the last year insiders paid US$319k for 45.00k shares. On the other hand they divested 3.37k shares, for US$29k. Overall, Cars.com insiders were net buyers during the last year. They paid about US$7.09 on average. We don't deny that it is nice to see insiders buying stock in the company. But we must note that the investments were made at well below today's share price. You can see the insider transactions (by companies and 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!
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Many investors like to check how much of a company is owned by insiders. We usually like to see fairly high levels of insider ownership. It appears that Cars.com insiders own 1.5% of the company, worth about US$14m. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
So What Do The Cars.com Insider Transactions Indicate?
It doesn't really mean much that no insider has traded Cars.com shares in the last quarter. On a brighter note, the transactions over the last year are encouraging. Overall we don't see anything to make us think Cars.com insiders are doubting the company, and they do own shares. So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. Case in point: We've spotted 1 warning sign for Cars.com you should be aware of.
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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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