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 we'll take a look at whether insiders have been buying or selling shares in Chegg, Inc. (NYSE:CHGG).
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, 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'.
Chegg Insider Transactions Over The Last Year
In the last twelve months, the biggest single sale by an insider was when the Co-Chairman, Daniel Rosensweig, sold US$30m worth of shares at a price of US$99.55 per share. We generally don't like to see insider selling, but the lower the sale price, the more it concerns us. The good news is that this large sale was at well above current price of US$89.63. So it may not tell us anything about how insiders feel about the current share price.
In total, Chegg insiders sold more than they bought over the last year. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!NYSE:CHGG Insider Trading Volume April 12th 2021
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Insiders at Chegg Have Sold Stock Recently
The last three months saw significant insider selling at Chegg. In total, Co-Chairman Daniel Rosensweig sold US$30m 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.
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. It's great to see that Chegg insiders own 2.6% of the company, worth about US$332m. 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 Chegg Insiders?
An insider hasn't bought Chegg stock in the last three months, but there was some selling. And our longer term analysis of insider transactions didn't bring confidence, either. The company boasts high insider ownership, but we're a little hesitant, given the history of share sales. So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. In terms of investment risks, we've identified 3 warning signs with Chegg and understanding them should be part of your investment process.
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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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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