Eaton Corporation plc's (NYSE:ETN) value has fallen 5.0% in the last week, but insiders who sold US$7.8m worth of stock over the last year have had less success. Insiders would probably have been better off holding on to their shares given that the average selling price of US$146 is still lower than the current share price.
While insider transactions are not the most important thing when it comes to long-term investing, logic dictates you should pay some attention to whether insiders are buying or selling shares.
Eaton Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider sale was by the insider, Brian Brickhouse, for US$2.0m worth of shares, at about US$135 per share. That means that an insider was selling shares at slightly below the current price (US$152). 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. It is worth noting that this sale was only 44% of Brian Brickhouse's holding.
In total, Eaton insiders sold more than they bought over the last year. You can see the insider transactions (by companies and individuals) 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!
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Insiders at Eaton Have Sold Stock Recently
The last three months saw significant insider selling at Eaton. In total, insiders sold US$1.0m 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 of Eaton
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. It's great to see that Eaton insiders own 0.2% of the company, worth about US$137m. Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.
What Might The Insider Transactions At Eaton Tell Us?
Insiders sold stock recently, but they haven't been buying. Zooming out, the longer term picture doesn't give us much comfort. But since Eaton is profitable and growing, we're not too worried by this. It is good to see high insider ownership, but the insider selling leaves us cautious. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Eaton. Case in point: We've spotted 3 warning signs for Eaton you should be aware of.
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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.
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