Shareholders might want to keep a close eye on AU Small Finance Bank Limited (NSE:AUBANK) after insiders sold ₹3.6b stock earlier this year

While AU Small Finance Bank Limited (NSE:AUBANK) shareholders have had a good week with the stock up 4.2%, they shouldn’t let their guards down. In spite of the relatively cheap prices, insiders made the decision to sell ₹3.6b worth of stock in the last 12 months. This could be a warning indicator of vulnerabilities in the future.

While insider transactions are not the most important thing when it comes to long-term investing, we would consider it foolish to ignore insider transactions altogether.

Our analysis indicates that AUBANK is potentially overvalued!

AU Small Finance Bank Insider Transactions Over The Last Year

In the last twelve months, the biggest single sale by an insider was when the insider, Shakuntala Agarwal, sold ₹3.1b worth of shares at a price of ₹629 per share. That means that even when the share price was slightly below the current price of ₹638, an insider wanted to cash in some shares. 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. Please do note, however, that sellers may have a variety of reasons for selling, so we don’t know for sure what they think of the stock price. This single sale was just 21% of Shakuntala Agarwal’s stake.

Insiders in AU Small Finance Bank did not buy any shares in the last year. The chart below shows insider transactions (by companies and individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!

NSEI:AUBANK Insider Trading Volume November 26th 2022

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

AU Small Finance Bank Insiders Are Selling The Stock

Over the last three months, we’ve seen significant insider selling at AU Small Finance Bank. In total, insiders dumped ₹133m worth of shares in that time, and we didn’t record any purchases whatsoever. In light of this, it’s hard to argue that all the insiders think that the shares are a bargain.

Insider Ownership

For a common shareholder, it is worth checking how many shares are held by company insiders. A high insider ownership often makes company leadership more mindful of shareholder interests. AU Small Finance Bank insiders own 27% of the company, currently worth about ₹115b based on the recent share price. Most shareholders would be happy to see this type of insider ownership, since it suggests that management incentives are well aligned with other shareholders.

So What Does This Data Suggest About AU Small Finance Bank Insiders?

Insiders sold stock recently, but they haven’t been buying. And there weren’t any purchases to give us comfort, over the last year. But it is good to see that AU Small Finance Bank is growing earnings. The company boasts high insider ownership, but we’re a little hesitant, given the history of share sales. In addition to knowing about insider transactions going on, it’s beneficial to identify the risks facing AU Small Finance Bank. To help with this, we’ve discovered 3 warning signs (1 is significant!) that you ought to be aware of before buying any shares in AU Small Finance Bank.

But note: AU Small Finance Bank 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.

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, but not derivative transactions.

Valuation is complex, but we’re helping make it simple.

Find out whether AU Small Finance Bank is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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 into account 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.

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