While Merck & Co., Inc. (NYSE:MRK) shareholders have had a good week with the stock up 3.1%, they shouldn't let their guards down. In spite of the relatively cheap prices, insiders made the decision to sell US$3.0m worth of stock in the last 12 months. This could be a warning indicator of vulnerabilities in the future.
While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, we do think it is perfectly logical to keep tabs on what insiders are doing.
Merck Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider sale was by the Executive VP & General Counsel, Jennifer Zachary, for US$1.7m worth of shares, at about US$99.85 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of US$108. 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 30% of Jennifer Zachary's stake.
Merck insiders didn't buy any shares over the last year. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Insiders At Merck Have Sold Stock Recently
The last quarter saw substantial insider selling of Merck shares. Specifically, insiders ditched US$3.0m worth of shares in that time, and we didn't record any purchases whatsoever. This may suggest that some insiders think that the shares are not cheap.
Does Merck Boast High Insider Ownership?
For a common shareholder, it is worth checking how many shares are held by company insiders. We usually like to see fairly high levels of insider ownership. Merck insiders own about US$204m worth of shares (which is 0.08% 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 Do The Merck Insider Transactions Indicate?
Insiders sold stock recently, but they haven't been buying. And there weren't any purchases to give us comfort, over the last year. But it is good to see that Merck is growing earnings. While insiders do own a lot of shares in the company (which is good), our analysis of their transactions doesn't make us feel confident about the company. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Merck. Case in point: We've spotted 2 warning signs for Merck you should be aware of.
But note: Merck 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. 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.
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