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 we'll take a look at whether insiders have been buying or selling shares in CarMax, Inc. (NYSE:KMX).
What Is Insider Buying?
Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock in the 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.'
CarMax Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider sale was by the Executive VP & COO, Edwin Hill, for US$419k worth of shares, at about US$87.49 per share. So we know that an insider sold shares at around the present share price of US$86.00. We generally don't like to see insider selling, but the lower the sale price, the more it concerns us. Given that the sale took place at around current prices, it makes us a little cautious but is hardly a major concern.
We note that in the last year insiders divested 10188 shares for a total of US$825k. In the last year CarMax insiders didn't buy any company stock. 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!
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Insiders at CarMax Have Sold Stock Recently
Over the last three months, we've seen significant insider selling at CarMax. In total, insiders dumped US$549k 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.
Insider Ownership of CarMax
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. I reckon it's a good sign if insiders own a significant number of shares in the company. Insiders own 0.5% of CarMax shares, worth about US$71m. 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 CarMax 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 it is good to see that CarMax is growing earnings. Insider ownership isn't particularly high, so this analysis makes us cautious about the company. We'd think twice before buying! 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.
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.