In the last year, many A. O. Smith Corporation (NYSE:AOS) insiders sold a substantial stake in the company which may have sparked shareholders' attention. 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.

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 A. O. Smith

In the last twelve months, the biggest single sale by an insider was when the Executive VP, James Stern, sold US$1.2m worth of shares at a price of US$73.00 per share. That means that even when the share price was below the current price of US$81.66, an insider wanted to cash in some shares. 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. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. This single sale was just 12% of James Stern's stake.

Insiders in A. O. Smith didn't buy any shares in the last year. The chart below shows insider transactions (by companies and individuals) over the last year. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

If you like to buy stocks that insiders are buying, rather than selling, then you might just love this free list of companies. (Hint: Most of them are flying under the radar).

A. O. Smith Insiders Are Selling The Stock

The last quarter saw substantial insider selling of A. O. Smith shares. In total, Independent Presiding Director Ronald Brown sold US$311k 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.

Insider Ownership Of A. O. Smith

Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. A. O. Smith insiders own 0.9% of the company, currently worth about US$110m based on the recent share price. I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.

So What Do The A. O. Smith Insider Transactions Indicate?

An insider hasn't bought A. O. Smith stock in the last three months, but there was some selling. And there weren't any purchases to give us comfort, over the last year. But it is good to see that A. O. Smith 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. Of course, the future is what matters most. So if you are interested in A. O. Smith, you should check out this free report on analyst forecasts for the company.

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.

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