Midstate trading: What to Make of Executive Stock Moves
Wednesday March 11, 2015
Several executives and large shareholders of public companies based in the midstate have been exercising options and increasing their ownership in their company's stock recently as the markets have continued to grow, according to SEC filings.
Long-term incentive compensation plans often help to spur that growth. Others sell or forfeit shares because options are expiring or they need to cover taxes.
But some are outright buying to take advantage of projected long-term stock growth or healthy dividends.
“I would say that CEO ownership and expansion of one's stake generally is viewed as a positive by investors,” said E. Jeffrey Roof, president of Harrisburg-based Roof Advisory Group Inc. “It clearly aligns the interests of the shareholders with management.”
But stock activity by executives and board members, more commonly referred to as “insiders,” is only one factor that drives performance, Roof said. It's not the primary reason investors should add or increase their stake in a particular company.
“It does create motivation to enhance performance,” he said. “Certainly it's a metric we end up looking at. It's a peek at the sentiment of management of the company.”
A lot of discretionary buying or exercising of options is an interpretation that management is positive on the forward-looking prospects of the stock, Roof added. Significant sales might indicate management is not as enthusiastic about the stock's near-term price prospects.
Still, the overriding factor to consider when making an investment decision is still corporate earnings. Every quarterly glimpse is important, as are macroeconomic trends and what the markets are doing as a whole, Roof said.
“Company earnings are clearly important, not just prior earnings for the past quarter, but also where they are guiding,” Roof said. “Also, what are the drivers (of those earnings)?”