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Need To Know: Wesfarmers Limited (ASX:WES) Insiders Have Been Buying Shares

It is not uncommon to see companies perform well in the years after insiders buy shares. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So before you buy or sell Wesfarmers Limited (ASX:WES), 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, such insiders must disclose their trading activities, and not trade on inside information.

We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But logic dictates you should pay some attention to whether insiders are buying or selling shares. For example, a Columbia University study found that 'insiders are more likely to engage in open market purchases of their own company’s stock when the firm is about to reveal new agreements with customers and suppliers'.

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View our latest analysis for Wesfarmers

Wesfarmers Insider Transactions Over The Last Year

In fact, the recent purchase by Sharon Warburton was the biggest purchase of Wesfarmers shares made by an insider individual in the last twelve months, according to our records. So it's clear an insider wanted to buy, even at a higher price than the current share price (being AU$34.89). Their view may have changed since then, but at least it shows they felt optimistic at the time. In our view, the price an insider pays for shares is very important. Generally speaking, it catches our eye when insiders have purchased shares at above current prices, as it suggests they believed the shares were worth buying, even at a higher price.

In the last twelve months Wesfarmers insiders were buying shares, but not selling. You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

ASX:WES Recent Insider Trading, March 20th 2020
ASX:WES Recent Insider Trading, March 20th 2020

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Insiders at Wesfarmers Have Bought Stock Recently

We saw some Wesfarmers insider buying shares in the last three months. Insiders shelled out AU$69k for shares in that time. It's great to see that insiders are only buying, not selling. But in this case the amount purchased means the recent transaction may not be very meaningful on its own.

Insider Ownership

Many investors like to check how much of a company is owned by insiders. We usually like to see fairly high levels of insider ownership. Insiders own 0.2% of Wesfarmers shares, worth about AU$92m. 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 Wesfarmers Insiders?

It is good to see recent purchasing. And an analysis of the transactions over the last year also gives us confidence. Insiders likely see value in Wesfarmers shares, given these transactions (along with notable insider ownership of the company). 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 Wesfarmers 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.