Despite a 12% gain in Preferred Bank's (NASDAQ:PFBC) stock price this week, shareholders shouldn't let up. In spite of the relatively cheap prices, insiders made the decision to sell US$6.2m worth of stock in the last 12 months. This could be a warning indicator of vulnerabilities in the future.

Although we don't think shareholders should simply follow insider transactions, we would consider it foolish to ignore insider transactions altogether.

The Last 12 Months Of Insider Transactions At Preferred Bank

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$95.52. 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. However, while insider selling is sometimes discouraging, it's only a weak signal. This single sale was just 2.8% of Li Yu's stake. Notably Li Yu was also the biggest buyer, having purchased US$116k worth of shares.

In total, Preferred Bank insiders sold more than they bought over the last year. You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

I will like Preferred Bank better if I see some big insider buys. While we wait, check out this free list of undervalued and small cap stocks with considerable, recent, insider buying.

Insiders At Preferred Bank Have Sold Stock Recently

The last three months saw significant insider selling at Preferred Bank. In total, insiders sold US$312k 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 Preferred Bank Boast High Insider Ownership?

Many investors like to check how much of a company is owned by 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$83m worth of shares. That equates to 7.4% 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.

What Might The Insider Transactions At Preferred Bank Tell Us?

Insiders sold stock recently, but they haven't been buying. Despite some insider buying, the longer term picture doesn't make us feel much more positive. While insiders do own shares, they don't own a heap, and they have been selling. We'd practice some caution before buying! While it's good to be aware of what's going on with the insider's ownership and transactions, we make sure to also consider what risks are facing a stock before making any investment decision. To help with this, we've discovered 2 warning signs (1 is potentially serious!) that you ought to be aware of before buying any shares in Preferred Bank.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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.