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Should You Be Worried About Insider Transactions At CarMax, Inc. (NYSE:KMX)?

Simply Wall St

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We often see insiders buying up shares in companies that perform well over the long term. 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 before you buy or sell CarMax, Inc. (NYSE:KMX), you may well want to know whether insiders have been buying or selling.

What Is Insider Selling?

It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, most countries require that the company discloses such transactions to the market.

We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. 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.'

See our latest analysis for CarMax

The Last 12 Months Of Insider Transactions At CarMax

In the last twelve months, the biggest single sale by an insider was when Non-Executive Chairman Thomas Folliard sold US$8.1m worth of shares at a price of US$76.03 per share. That means that an insider was selling shares at around the current price of US$69.80. They could have a variety of motivations for selling, but it's still not particularly encouraging to see. We generally tread carefully if insiders have been selling on market, even if they sold slightly above the current price.

In total, CarMax insiders sold more than they bought over the last year. They sold for an average price of about US$72.55. It's not too encouraging to see that insiders have sold at below the current price. Of course, the sales could be motivated for a multitude of reasons, so we shouldn't jump to conclusions. 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!

NYSE:KMX Recent Insider Trading, April 1st 2019

I will like CarMax better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Insiders at CarMax Have Sold Stock Recently

The last three months saw some CarMax insider selling. Director Peter Bensen only netted US$10k selling shares, in that period. Neither the lack of buying nor the presence of selling is heartening. But the selling simply isn't sufficiently substantial to be of much use as a signal.

Insider Ownership of CarMax

For a common shareholder, it is worth checking how many shares are held by company insiders. We usually like to see fairly high levels of insider ownership. It appears that CarMax insiders own 0.5% of the company, worth about US$55m. 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 Does This Data Suggest About CarMax Insiders?

We note a that there's been a little more insider selling than buying, recently. But the difference isn't enough to have us worried. Recent insider selling makes us a little nervous, in light of the broader picture of CarMax insider transactions. But it's good to see that insiders own shares in the company. Therefore, you should should definitely take a look at this FREE report showing analyst forecasts for CarMax.

But note: CarMax 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.

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 editorial-team@simplywallst.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.