We often see insiders buying up shares in companies that perform well over the long term. 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 shareholders might well want to know whether insiders have been buying or selling shares in Electrocomponents plc (LON:ECM).
Do Insider Transactions Matter?
Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock on the market. 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.’
The Last 12 Months Of Insider Transactions At Electrocomponents
In the last twelve months, the biggest single sale by an insider was when CEO & Director Lindsley Ruth sold UK£372k worth of shares at a price of UK£7.45 per share. That is hardly a positive sign, even though it took place above the latest price (UK£5.10). So it may not shed much light on insider confidence at current levels. Lindsley Ruth was the only individual insider to sell over the last year.
Happily, we note that in the last year insiders paid UK£320k for 58.00k shares. But insiders sold 50.00k shares worth UK£372k. You can see the insider transactions 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!
Electrocomponents is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Electrocomponents Insiders Bought Stock Recently
Over the last quarter, Electrocomponents insiders have spent a meaningful amount on shares. Not only was there no selling that we can see, but they collectively bought UK£197k worth of shares. This makes one think the business has some good points.
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. A high insider ownership often makes company leadership more mindful of shareholder interests. It’s great to see that Electrocomponents insiders own 0.2% of the company, worth about UK£3.5m. 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 Electrocomponents Insider Transactions Indicate?
The recent insider purchases are heartening. However, the longer term transactions are not so encouraging. We’re not thrilled with the relatively low insider ownership and the longer term transaction history. But we like the recent purchasing. Of course, the future is what matters most. So if you are interested in Electrocomponents, you should check out this free report on analyst forecasts for the company.
But note: Electrocomponents 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.