We’ve lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. 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 before you buy or sell National Beverage Corp. (NASDAQ:FIZZ), you may well want to know whether insiders have been buying or selling.
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, such insiders must disclose their trading activities, and not trade on inside information.
We don’t think shareholders should simply follow insider transactions. But it is perfectly logical to keep tabs on what insiders are doing. 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’.
Over the last year, we can see that the biggest insider purchase was by President & Director Joseph Caporella for US$360k worth of shares, at about US$59.95 per share. That means that an insider was happy to buy shares at above the current price of US$43.96. While their view may have changed since the purchase was made, this does at least suggest they have had confidence in the company’s future. In our view, the price an insider pays for shares is very important. As a general rule, we feel more positive about a stock if insiders have bought shares at above current prices, because that suggests they viewed the stock as good value, even at a higher price.
National Beverage insiders may have bought shares in the last year, but they didn’t sell any. You can see the insider transactions (by 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!
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. We usually like to see fairly high levels of insider ownership. It appears that National Beverage insiders own 3.5% of the company, worth about US$72m. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
The fact that there have been no National Beverage insider transactions recently certainly doesn’t bother us. However, our analysis of transactions over the last year is heartening. Insiders own shares in National Beverage and we see no evidence to suggest they are worried about the future. Of course, the future is what matters most.
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