Whenever an insider buys company stock, they must declare their purchase. This information is then made publicly available and investors can use the data for their own decision-making. This insight is also commonly found in documents and online articles called insider buying reports.
Insider buying reports explain who an insider is, financial details of their purchase, what the company does, and whether the insider has been influenced by other events. In this article, we answer the following questions about insider buying reports:
- Where can I find insider buying information?
- What is an insider trading report?
- What are some examples of insider buying reports?
- What does insider buying indicate?
- What qualifies as insider information?
Where Can I Find Insider Buying Information?
As we mentioned when we explained what insider transactions are, corporate insiders must report when they buy and sell stock.
In the United States, an insider follows a process defined by the Securities and Exchange Commission (SEC), the industry regulator. An insider completes a form detailing the nature of their transaction and this data is then compiled into a public database called EDGAR.
In addition to official databases, financial journalists and websites like Forbes, Investopedia and 2iQ regularly post insider buying reports about recent insider transactions. These reports can be more insightful as they contain analysis of an insider’s purchase.
What Is an Insider Trading Report?
An insider trading report is essentially a research document prepared by financial analysts, hedge funds, professional investors, financial technology providers or private equity firms. Some reports are available for free while others cost money.
Insider trading reports come in two types - buying and selling.
An insider buying report covers an insider who has purchased stock. A large purchase or a significant increase in an insider’s holding can imply confidence in a company’s prospects and is a bullish signal.
Insider selling reports cover the opposite. These reports might also mention if the shares sold are common stock or restricted stock owned by the insider. Restricted stock are shares that an insider is given as part of an employee stock ownership plan (ESOPs). Shares retained by a company’s founders are also classified as restricted stock.
According to the SEC, an insider has to hold restricted stock for at least one year before he/she can sell the stock. Moreover, restricted stock is considered the bedrock on which an insider’s stake in the company is built. This makes the sale of restricted stock a bearish sign.
While these reports can provide insight into an organization’s operations, they are not a guarantee of future stock performance. Under some circumstances, selling can be a bullish sign and buying a bearish one.
What Are Some Examples of Insider Buying Reports?
Here are some insider buying reports previously published by 2iQ:
- At Home Group Inc (HOME:US)
Published 2nd October 2020.
This report focused on insider buying patterns at home decor company, At Home Group. SEC Form 4 data obtained from the EDGAR database showed that between 21st and 25th September 2020, three insiders – including the Chairman and CEO Lewis Bird – purchased a substantial amount of company stock. Combined, these insiders spent around $386,000 on the shares.
- Bluegreen Vacation Holding Corp (BVH:US)
Published 20th May 2021.
This insider buying report outlines insider purchases at the small vacation ownership company, Bluegreen Vacation Holding Corp. CFO Raymond Lopez purchased 5,000 shares at $19.00 per share, spending $95,000 on the stock, while Chief Sales Officer Dusty Tonkin purchased 10,500 shares at $18.79, spending $197,300 on the stock.
Two different insiders buying stock close together is interesting as this is nearly an example of cluster buying. Cluster buying happens when three or more insiders buy the same stock within a short period of time. Cluster buying is considered a bullish signal.
- E.ON SE (EOAN:GR)
Published 20th May 2021.
German energy supplier E.ON saw substantial insider buying activity on 12th May 2021. CEO Leonhard Birnbaum purchased 84,267 EOAN shares at €10.70 per share, spending €902,000 on the stock. On the same day, Supervisory Board member Andreas Schmitz purchased 14,200 shares at €10.69 per share, spending €152,000. These transactions may be a result of a sizable increase in E.ON’s EBIT for Q1 2021.
- Bumble Inc (BMBL:US)
Published 2nd June 2021.
Bumble, the parent company of Badoo and Bumble – two of the world’s highest-grossing dating apps - saw board member Amy Griffin purchase 117,500 shares. As this insider buying report explained, Ms. Griffin’s purchase was substantial in size and particularly interesting due to her venture capital background. Ms. Griffin is currently the Managing Partner of G9 Ventures
What Does Insider Buying Indicate?
Insider buying suggests an insider is confident in the company they own stock of.
In some cases, newly appointed insiders buy company stock to commence their tenure at the company or are awarded these stocks as part of their terms of employment. While insider buying is generally considered a bullish sign, the timing and volume of the purchase should also be considered when drawing conclusions. Insider transactions should not be assessed in isolation.
What Qualifies as Insider Information?
Insider information is a broad term used to describe any key piece of information that provides insight into the performance of a company’s stock in the near future. Because this information is generally not available to the public, the SEC restricts insiders from making purchases based on insider information.
Any insider trading based upon non-public information is therefore considered illegal in the United States. The same laws apply within other stock markets around the world.
Insider buying reports are powerful research tools that help investors with their stock market decision-making. These reports provide insight into how a company’s executives see the company’s stock and what direction they think the stock might head.
While these reports are useful for fundamental research, they should not be used to draw material inferences in every situation, as we explained here.