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 shareholders might well want to know whether insiders have been buying or selling shares in Open Text Corporation (NASDAQ:OTEX).
Do Insider Transactions Matter?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a 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 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’.
The Last 12 Months Of Insider Transactions At Open Text
Over the last year, we can see that the biggest insider sale was by the Vice Chairman, Mark Barrenechea, for US$22m worth of shares, at about US$47.28 per share. So it’s clear an insider wanted to take some cash off the table, even below the current price of US$51.52. We generally consider it a negative if insiders have been selling, especially if they did so below the current price, because it implies that they considered a lower price to be reasonable. However, while insider selling is sometimes discouraging, it’s only a weak signal. It is worth noting that this sale was only 32% of Mark Barrenechea’s holding.
Happily, we note that in the last year insiders paid US$13m for 284.95k shares. But they sold 675.59k shares for US$32m. Over the last year we saw more insider selling of Open Text shares, than buying. The chart below shows insider transactions (by companies and individuals) over the last year. If you want to know exactly who sold, for how much, and when, simply click on the graph below!
If you like to buy stocks that insiders are buying, rather than selling, then you might just love this free list of companies. (Hint: insiders have been buying them).
Insiders at Open Text Have Sold Stock Recently
There was substantially more insider selling, than buying, of Open Text shares over the last three months. In total, insiders sold US$31m worth of shares in that time. On the other hand we note Non Independent Director Stephen Sadler bought US$3.7m worth of shares. Because the selling vastly outweighs the buying, we’d say this is a somewhat bearish sign.
Does Open Text Boast High Insider Ownership?
Many investors like to check how much of a company is owned by insiders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Open Text insiders own about US$235m worth of shares (which is 1.7% of the company). I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.
What Might The Insider Transactions At Open Text Tell Us?
Unfortunately, there has been more insider selling of Open Text stock, than buying, in the last three months. Zooming out, the longer term picture doesn’t give us much comfort. While insiders do own a lot of shares in the company (which is good), our analysis of their transactions doesn’t make us feel confident about the company. So these insider transactions can help us build a thesis about the stock, but it’s also worthwhile knowing the risks facing this company. You’d be interested to know, that we found 4 warning signs for Open Text and we suggest you have a look.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
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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