The fact that multiple Rapid7, Inc. (NASDAQ:RPD) 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, if numerous insiders are selling, shareholders should investigate more.
Although we don't think shareholders should simply follow insider transactions, we do think it is perfectly logical to keep tabs on what insiders are doing.
The Last 12 Months Of Insider Transactions At Rapid7
The President & COO, Andrew Burton, made the biggest insider sale in the last 12 months. That single transaction was for US$2.0m worth of shares at a price of US$52.89 each. That means that an insider was selling shares at slightly below the current price (US$54.44). When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. However, while insider selling is sometimes discouraging, it's only a weak signal. It is worth noting that this sale was only 32% of Andrew Burton's holding.
Rapid7 insiders didn't buy any shares over the last year. The chart below shows insider transactions (by companies and individuals) over the last year. 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.
Insiders At Rapid7 Have Sold Stock Recently
The last three months saw significant insider selling at Rapid7. In total, insiders sold US$1.8m 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.
Does Rapid7 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. We usually like to see fairly high levels of insider ownership. Insiders own 1.6% of Rapid7 shares, worth about US$56m. While this is a strong but not outstanding level of insider ownership, it's enough to indicate some alignment between management and smaller shareholders.
So What Does This Data Suggest About Rapid7 Insiders?
Insiders sold Rapid7 shares recently, but they didn't buy any. And even if we look at the last year, we didn't see any purchases. Insiders own shares, but we're still pretty cautious, given the history of sales. So we'd only buy after careful consideration. 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 instance, we've identified 3 warning signs for Rapid7 (1 makes us a bit uncomfortable) you should be aware of.
But note: Rapid7 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 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.