Over the past year, many Preferred Bank (NASDAQ:PFBC) insiders sold a significant stake in the company which may have piqued investors' interest. When evaluating insider transactions, knowing whether insiders are buying is usually more beneficial than knowing whether they are selling, as the latter can be open to many interpretations. However, when multiple insiders sell stock over a specific duration, shareholders should take notice as that could possibly be a red flag.

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.

Preferred Bank Insider Transactions Over The Last Year

Over the last year, we can see that the biggest insider sale was by the Chairman, Li Yu, for US$1.6m worth of shares, at about US$80.00 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of US$84.83. We generally consider it a negative if insiders have been selling, especially if they did so below the current price, because it implies that they considered a lower price to be reasonable. 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. It is worth noting that this sale was only 2.8% of Li Yu's holding. Notably Li Yu was also the biggest buyer, having purchased US$116k worth of shares.

Over the last year we saw more insider selling of Preferred Bank shares, than buying. 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!

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Preferred Bank Insiders Are Selling The Stock

Over the last three months, we've seen notably more insider selling, than insider buying, at Preferred Bank. We note insiders cashed in US$4.1m worth of shares. Meanwhile Chairman Li Yu bought US$116k worth , as we said above . Because the selling vastly outweighs the buying, we'd say this is a somewhat bearish sign.

Does Preferred Bank Boast High Insider Ownership?

For a common shareholder, it is worth checking how many shares are held by company insiders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Preferred Bank insiders own about US$77m worth of shares. That equates to 7.3% of the company. 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 Preferred Bank Insiders?

The insider sales have outweighed the insider buying, at Preferred Bank, in the last three months. Zooming out, the longer term picture doesn't give us much comfort. On the plus side, Preferred Bank makes money, and is growing profits. Insiders own shares, but we're still pretty cautious, given the history of sales. So we'd only buy after careful consideration. 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. To help with this, we've discovered 2 warning signs (1 is a bit unpleasant!) that you ought to be aware of before buying any shares in Preferred Bank.

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 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com