We often see insiders buying up shares in companies that perform well over the long term. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So shareholders might well want to know whether insiders have been buying or selling shares in Resolute Forest Products Inc. (NYSE:RFP).
What Is Insider Buying?
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, rules govern insider transactions, and certain disclosures are required.
Insider transactions are not the most important thing when it comes to long-term investing. But logic dictates you should pay some attention to whether insiders are buying or selling shares. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year’.
Resolute Forest Products Insider Transactions Over The Last Year
The Senior VP of Corporate Affairs, Jacques Vachon, made the biggest insider sale in the last 12 months. That single transaction was for US$208k worth of shares at a price of US$3.16 each. So it’s clear an insider wanted to take some cash off the table, even below the current price of US$5.00. 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. Please do note, however, that sellers may have a variety of reasons for selling, so we don’t know for sure what they think of the stock price. This single sale was just 39% of Jacques Vachon’s stake.
In the last twelve months insiders purchased 14.10k shares for US$49k. On the other hand they divested 85.82k shares, for US$306k. In total, Resolute Forest Products insiders sold more than they bought over the last year. The sellers received a price of around US$3.56, on average. It’s not too encouraging to see that insiders have sold at below the current price. Of course, the sales could be motivated for a multitude of reasons, so we shouldn’t jump to conclusions. 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!
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Resolute Forest Products Insiders Are Selling The Stock
There was substantially more insider selling, than buying, of Resolute Forest Products shares over the last three months. In total, insiders sold US$306k worth of shares in that time. On the other hand we note Independent Director Jennifer Dolan bought US$9.8k worth of shares. We don’t view these transactions as a positive sign.
I like to look at how many shares insiders own in a company, to help inform my view of how aligned they are with insiders. We usually like to see fairly high levels of insider ownership. Our data indicates that Resolute Forest Products insiders own about US$5.5m worth of shares (which is 1.3% of the company). Whilst better than nothing, we’re not overly impressed by these holdings.
What Might The Insider Transactions At Resolute Forest Products Tell Us?
The stark truth for Resolute Forest Products is that there has been more insider selling than insider buying in the last three months. Despite some insider buying, the longer term picture doesn’t make us feel much more positive. Insiders own relatively few shares in the company, and when you consider the sales, we’re not particularly excited about the stock. So we’re not rushing to buy, to say the least. So while it’s helpful to know what insiders are doing in terms of buying or selling, it’s also helpful to know the risks that a particular company is facing. Every company has risks, and we’ve spotted 2 warning signs for Resolute Forest Products you should know about.
But note: Resolute Forest Products may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE 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.
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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.
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