We often see insiders buying up shares in companies that perform well over the long term. 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 before you buy or sell Chimera Investment Corporation (NYSE:CIM), you may well want to know whether insiders have been buying or selling.
Do Insider Transactions Matter?
It’s quite normal to see company insiders, such as board members, trading in company stock, from time to time. However, rules govern insider transactions, and certain disclosures are required.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. 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 Chimera Investment
In the last twelve months, the biggest single purchase by an insider was when Independent Non-Executive Chairman Paul Donlin bought US$1.8m worth of shares at a price of US$15.22 per share. That means that an insider was happy to buy shares at above the current price of US$8.60. 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. We always take careful note of the price insiders pay when purchasing shares. It is generally more encouraging if they paid above the current price, as it suggests they saw value, even at higher levels.
Chimera Investment insiders may have bought shares in the last year, but they didn’t sell any. They paid about US$10.52 on average. I’d consider this a positive as it suggests insiders see value at around the current price. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Chimera Investment is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Does Chimera Investment Boast High Insider Ownership?
Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. 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 Chimera Investment insiders own 0.9% of the company, worth about US$18m. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
What Might The Insider Transactions At Chimera Investment Tell Us?
It doesn’t really mean much that no insider has traded Chimera Investment shares in the last quarter. But insiders have shown more of an appetite for the stock, over the last year. Insiders do have a stake in Chimera Investment and their transactions don’t cause us concern. So these insider transactions can help us build a thesis about the stock, but it’s also worthwhile knowing the risks facing this company. For example, Chimera Investment has 4 warning signs (and 2 which are concerning) we think you should know about.
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, 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.