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

Simply Wall St

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We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So we'll take a look at whether insiders have been buying or selling shares in Medifast, Inc. (NYSE:MED).

What Is Insider Buying?

It's quite normal to see company insiders, such as board members, trading in company stock, from time to time. However, such insiders must disclose their trading activities, and not trade on inside information.

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. For example, a Columbia University study found that 'insiders are more likely to engage in open market purchases of their own company’s stock when the firm is about to reveal new agreements with customers and suppliers'.

View our latest analysis for Medifast

Medifast Insider Transactions Over The Last Year

In the last twelve months, the biggest single sale by an insider was when Non-Executive Chairman Michael MacDonald sold US$2.5m worth of shares at a price of US$133 per share. So what is clear is that an insider saw fit to sell at around the current price of US$128. 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.

Over the last year, we can see that insiders have bought 1.18k shares worth US$181k. But insiders sold 28.51k shares worth US$3.8m. All up, insiders sold more shares in Medifast than they bought, over the last year. They sold for an average price of about US$134. It's not particularly great to see insiders were selling shares around current prices. While some insiders have decided to take some money off the table, we wouldn't put too much weight on this fact. The chart below shows insider transactions (by individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!

NYSE:MED Recent Insider Trading, April 1st 2019

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Medifast Insiders Are Selling The Stock

Over the last three months, we've seen significant insider selling at Medifast. In total, insiders dumped US$3.4m worth of shares in that time, and we didn't record any purchases whatsoever. This may suggest that some insiders think that the shares are not cheap.

Insider Ownership of Medifast

For a common shareholder, it is worth checking how many shares are held by company insiders. A high insider ownership often makes company leadership more mindful of shareholder interests. Medifast insiders own about US$57m worth of shares. That equates to 3.8% of the company. 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 Medifast Insiders?

Insiders sold stock recently, but they haven't been buying. Zooming out, the longer term picture doesn't give us much comfort. But since Medifast is profitable and growing, we're not too worried by this. While insiders do own shares, they don't own a heap, and they have been selling. So we'd only buy after careful consideration. Of course, the future is what matters most. So if you are interested in Medifast, you should check out this free report on analyst forecasts for the company.

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.

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.