It is not uncommon to see companies perform well in the years after insiders buy shares. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So before you buy or sell Eaton Corporation plc (NYSE:ETN), you may well want to know whether insiders have been buying or selling.
What Is Insider Selling?
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.
Insider transactions are not the most important thing when it comes to long-term investing. But equally, we would consider it foolish to ignore insider transactions altogether. As Peter Lynch said, 'insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.
Eaton Insider Transactions Over The Last Year
In the last twelve months, the biggest single sale by an insider was when the Vice Chairman and Chief Financial & Planning Officer, Richard Fearon, sold US$2.5m worth of shares at a price of US$80.25 per share. That means that an insider was selling shares at slightly below the current price (US$85.62). 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 12% of Richard Fearon's stake.
In the last twelve months insiders purchased 2285 shares for US$180k. But they sold 138653 for US$11m. Over the last year we saw more insider selling of Eaton shares, than buying. The chart below shows insider transactions (by individuals) over the last year. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
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Eaton Insiders Are Selling The Stock
The last three months saw significant insider selling at Eaton. In total, insiders dumped US$2.0m worth of shares in that time, and we didn't record any purchases whatsoever. In light of this it's hard to argue that all the insiders think that the shares are a bargain.
Does Eaton Boast High Insider Ownership?
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. Insiders own 0.3% of Eaton shares, worth about US$92m. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
So What Do The Eaton Insider Transactions Indicate?
Insiders sold Eaton shares recently, but they didn't buy any. Zooming out, the longer term picture doesn't give us much comfort. Insiders own shares, but we're still pretty cautious, given the history of sales. So we'd only buy after careful consideration. 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.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
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.
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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.