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Should You Be Worried About Insider Transactions At Caterpillar Inc. (NYSE:CAT)?

Simply Wall St

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 before you buy or sell Caterpillar Inc. (NYSE:CAT), 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, rules govern insider transactions, and certain disclosures are required.

Insider transactions are not the most important thing when it comes to long-term investing. 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.

View our latest analysis for Caterpillar

Caterpillar Insider Transactions Over The Last Year

Notably, that recent sale by Denise Johnson is the biggest insider sale of Caterpillar shares that we've seen in the last year. So it's clear an insider wanted to take some cash off the table, even slightly below the current price of US$147. As a general rule we consider it to be discouraging when insiders are selling below the current price, because it suggests they were happy with a lower valuation. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. This single sale was just 31% of Denise Johnson's stake.

You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!

NYSE:CAT Recent Insider Trading, November 8th 2019

I will like Caterpillar 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 Caterpillar Have Sold Stock Recently

The last quarter saw substantial insider selling of Caterpillar shares. Specifically, Group President of Resource Industries Denise Johnson ditched US$749k 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.

Insider Ownership

Many investors like to check how much of a company is owned by insiders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Caterpillar insiders own about US$121m worth of shares (which is 0.1% of the company). This kind of significant ownership by insiders does generally increase the chance that the company is run in the interest of all shareholders.

So What Does This Data Suggest About Caterpillar Insiders?

An insider sold Caterpillar shares recently, but they didn't buy any. And there weren't any purchases to give us comfort, over the last year. On the plus side, Caterpillar makes money, and is growing profits. It is good to see high insider ownership, but the insider selling leaves us cautious. Therefore, you should should definitely take a look at this FREE report showing analyst forecasts for Caterpillar.

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 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.