The fact that multiple Eaton Corporation plc (NYSE:ETN) insiders offloaded a considerable amount of shares over the past year could have raised some eyebrows amongst investors. When analyzing insider transactions, it is usually more valuable to know whether insiders are buying versus knowing if they are selling, as the latter sends an ambiguous message. However, when multiple insiders sell stock over a specific duration, shareholders should take notice as that could possibly be a red flag.
Although we don’t think shareholders should simply follow insider transactions, logic dictates you should pay some attention to whether insiders are buying or selling shares.
Check out our latest analysis for Eaton
The Last 12 Months Of Insider Transactions At Eaton
Over the last year, we can see that the biggest insider sale was by the President & COO of Electrical Sector, Heath Monesmith, for US$2.2m worth of shares, at about US$221 per share. That means that an insider was selling shares at slightly below the current price (US$332). 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. However, while insider selling is sometimes discouraging, it’s only a weak signal. This single sale was just 14% of Heath Monesmith’s stake.
Insiders in Eaton didn’t buy any shares in the last year. 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!
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Insiders At Eaton Have Sold Stock Recently
The last three months saw significant insider selling at Eaton. In total, insider Peter Denk dumped US$802k worth of shares in that time, and we didn’t record any purchases whatsoever. Overall this makes us a bit cautious, but it’s not the be all and end all.
Insider Ownership
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. Eaton insiders own about US$319m worth of shares (which is 0.2% of the company). Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.
So What Do The Eaton Insider Transactions Indicate?
An insider sold stock recently, but they haven’t been buying. And there weren’t any purchases to give us comfort, over the last year. But since Eaton is profitable and growing, we’re not too worried by this. The company boasts high insider ownership, but we’re a little hesitant, given the history of share sales. Of course, the future is what matters most. So if you are interested in Eaton, you should check out this free report on analyst forecasts for the company.
Of course Eaton may not be the best stock to buy. So you may wish to see this free collection of high quality 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 of direct interests only, but not derivative transactions or indirect interests.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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@simplywallst.com