In the last year, many Eaton Corporation plc (NYSE:ETN) insiders sold a substantial stake in the company which may have sparked shareholders’ attention. When evaluating insider transactions, knowing whether insiders are buying is usually more beneficial than knowing whether they are selling, as the latter can be open to many interpretations. However, when multiple insiders sell stock over a specific duration, shareholders should take notice as that could possibly be a red flag.
While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, logic dictates you should pay some attention to whether insiders are buying or selling shares.
See our latest analysis for Eaton
The Last 12 Months Of Insider Transactions At Eaton
The Executive VP & CFO, Olivier Leonetti, made the biggest insider sale in the last 12 months. That single transaction was for US$1.2m worth of shares at a price of US$272 each. That means that even when the share price was below the current price of US$333, an insider wanted to cash in some shares. 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. While insider selling is not a positive sign, we can’t be sure if it does mean insiders think the shares are fully valued, so it’s only a weak sign. This single sale was 88% of Olivier Leonetti’s stake.
In the last twelve months insiders purchased 2.71k shares for US$812k. But they sold 16.67k shares for US$4.9m. In total, Eaton insiders sold more than they bought over the last year. The chart below shows insider transactions (by companies and individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!
I will like Eaton better if I see some big insider buys. While we wait, check out this free list of undervalued and small cap stocks with considerable, recent, insider buying.
Eaton Insiders Bought Stock Recently
At Eaton,over the last quarter, we have observed quite a lot more insider buying than insider selling. In total, two insiders bought US$812k worth of shares in that time. But insiders only sold shares worth US$759k. We think insiders may be optimistic about the future, since insiders have been net buyers of shares.
Does Eaton Boast High 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$325m 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 Does This Data Suggest About Eaton Insiders?
It is good to see recent purchasing. But we can’t say the same for the transactions over the last 12 months. The recent buying by some insiders , along with high insider ownership, suggest that Eaton insiders are fairly aligned, and optimistic. If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of interesting companies, that have HIGH return on equity 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 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.