In the last year, many Reddit, Inc. (NYSE:RDDT) insiders sold a substantial stake in the company which may have sparked shareholders' attention. When evaluating insider transactions, knowing whether insiders are buying is usually more beneficial than knowing whether they are selling, as the latter can be open to many interpretations. However, shareholders should take a deeper look if several insiders are selling stock over a specific time period.

While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, we would consider it foolish to ignore insider transactions altogether.

See our latest analysis for Reddit

Reddit Insider Transactions Over The Last Year

In the last twelve months, the biggest single sale by an insider was when the Chief Operating Officer, Jennifer Wong, sold US$17m worth of shares at a price of US$32.30 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of US$177. When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. It is worth noting that this sale was only 23% of Jennifer Wong's holding.

Over the last year, we can see that insiders have bought 13.00k shares worth US$442k. On the other hand they divested 1.55m shares, for US$59m. Over the last year we saw more insider selling of Reddit shares, than buying. The chart below shows insider transactions (by companies and 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 that insiders are buying, rather than selling, then you might just love this free list of companies. (Hint: Most of them are flying under the radar).

Reddit Insiders Are Selling The Stock

The last quarter saw substantial insider selling of Reddit shares. Specifically, insiders ditched US$4.1m worth of shares in that time, and we didn't record any purchases whatsoever. This may suggest that some insiders think that the shares are not cheap.

Insider Ownership Of Reddit

Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Reddit insiders own 4.5% of the company, currently worth about US$1.4b based on the recent share price. I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.

What Might The Insider Transactions At Reddit Tell Us?

Insiders sold stock recently, but they haven't been buying. And our longer term analysis of insider transactions didn't bring confidence, either. It is good to see high insider ownership, but the insider selling leaves us cautious. So while it's helpful to know what insiders are doing in terms of buying or selling, it's also helpful to know the risks that a particular company is facing. At Simply Wall St, we found 2 warning signs for Reddit that deserve your attention before buying any shares.

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.