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We often see insiders buying up shares in companies that perform well over the long term. On the other hand, we’d be remiss not to mention that insider sales have been known to precede tough periods for a business. So shareholders might well want to know whether insiders have been buying or selling shares in Sonata Software Limited (NSE:SONATSOFTW).

Do Insider Transactions Matter?

It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, rules govern insider transactions, and certain disclosures are required.

Insider transactions are not the most important thing when it comes to long-term investing. But it is perfectly logical to keep tabs on what insiders are doing. As Peter Lynch said, ‘insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.’

See our latest analysis for Sonata Software

The Last 12 Months Of Insider Transactions At Sonata Software

Over the last year, we can see that the biggest insider sale was by CEO, MD & Executive Director Palem Reddy for ₹69m worth of shares, at about ₹330 per share. So what is clear is that an insider saw fit to sell at around the current price of ₹330. They could have a variety of motivations for selling, but it’s still not particularly encouraging to see. Arguably, insider selling at around current prices should give us reason to reflect on whether the stock is fully valued at the moment.

In the last twelve months insiders netted ₹89m for 266.73k shares sold. In total, Sonata Software insiders sold more than they bought over the last year. The average sell price was around ₹335. It’s not particularly great to see insiders were selling shares around current prices. But we don’t put too much weight on the insider selling, since sellers could have personal reasons. The chart below shows insider transactions (by individuals) over the last year. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Insider Ownership

Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Sonata Software insiders own about ₹15b worth of shares (which is 42% 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 Does This Data Suggest About Sonata Software Insiders?

There haven’t been any insider transactions in the last three months — that doesn’t mean much. While we feel good about high insider ownership of Sonata Software, we can’t say the same about the selling of shares. Of course, the future is what matters most. So if you are interested in Sonata Software, you should check out this free report on analyst forecasts for the company.

But note: Sonata Software 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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.