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 Lithia Motors, Inc. (NYSE:LAD).
Do Insider Transactions Matter?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a 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. 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.'
Lithia Motors Insider Transactions Over The Last Year
The CEO, President & Director, Bryan DeBoer, made the biggest insider sale in the last 12 months. That single transaction was for US$2.5m worth of shares at a price of US$89.83 each. That means that even when the share price was below the current price of US$117, an insider wanted to cash in some shares. We generally consider it a negative if insiders have been selling on market, especially if they did so below the current price, because it implies that they considered a lower price to be reasonable. 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. We note that the biggest single sale was only 17.9% of Bryan DeBoer's holding.
In the last twelve months insiders purchased 2425 shares for US$203k. On the other hand they divested 48825 shares, for US$4.8m. In total, Lithia Motors insiders sold more than they bought over the last year. 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!
I will like Lithia Motors better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Lithia Motors Insiders Are Selling The Stock
The last three months saw significant insider selling at Lithia Motors. In total, Founder & Chairman Sidney DeBoer dumped US$1.8m worth of shares in that time, and we didn't record any purchases whatsoever. Overall this makes us a bit cautious, but it's not the be all and end all.
Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. A high insider ownership often makes company leadership more mindful of shareholder interests. Insiders own 1.6% of Lithia Motors shares, worth about US$43m. While this is a strong but not outstanding level of insider ownership, it's enough to indicate some alignment between management and smaller shareholders.
What Might The Insider Transactions At Lithia Motors Tell Us?
An insider sold Lithia Motors shares recently, but they didn't buy any. Despite some insider buying, the longer term picture doesn't make us feel much more positive. But since Lithia Motors 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 Lithia Motors, you should check out this free report on analyst forecasts for the company.
Of course Lithia Motors may not be the best stock to buy. So you may wish to see this free collection of high quality companies.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body.
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