It is not uncommon to see companies perform well in the years after insiders buy shares. 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 we'll take a look at whether insiders have been buying or selling shares in Enterprise Bancorp, Inc. (NASDAQ:EBTC).
What Is Insider Buying?
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, most countries require that the company discloses such transactions to the market.
We don't think shareholders should simply follow insider transactions. 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'.
Enterprise Bancorp Insider Transactions Over The Last Year
The Director, Kenneth Ansin, made the biggest insider sale in the last 12 months. That single transaction was for US$197k worth of shares at a price of US$35.92 each. So what is clear is that an insider saw fit to sell at around the current price of US$32.76. While insider selling is a negative, to us, it is more negative if the shares are sold at a lower price. In this case, the big sale took place at around the current price, so it's not too bad (but it's still not a positive).
Over the last year, we can see that insiders have bought 4.49k shares worth US$104k. But insiders sold 23.02k shares worth US$784k. In total, Enterprise Bancorp 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!NasdaqGS:EBTC Insider Trading Volume July 28th 2021
I will like Enterprise Bancorp better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Enterprise Bancorp Insiders Are Selling The Stock
We've seen more insider selling than insider buying at Enterprise Bancorp recently. In that time, Director Kenneth Ansin dumped US$590k worth of shares. On the other hand we note insiders bought US$9.7k worth of shares. Generally this level of net selling might be considered a bit bearish.
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 appears that Enterprise Bancorp insiders own 25% of the company, worth about US$97m. 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 Do The Enterprise Bancorp Insider Transactions Indicate?
The insider sales have outweighed the insider buying, at Enterprise Bancorp, in the last three months. Despite some insider buying, the longer term picture doesn't make us feel much more positive. But since Enterprise Bancorp is profitable and growing, we're not too worried by this. Insiders own shares, but we're still pretty cautious, given the history of sales. We'd practice some caution before buying! While we like knowing what's going on with the insider's ownership and transactions, we make sure to also consider what risks are facing a stock before making any investment decision. For example - Enterprise Bancorp has 1 warning sign we think you should be aware of.
But note: Enterprise Bancorp may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE 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.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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