On the heels of its lackluster earnings release, American Express Company (NYSE:AXP)' stock has hit five-year highs. And while investors and analysts celebrate the company's forward-thinking business plans and momentum, company executives have been purging their shares. Here's what investors need to know about how to view insider transactions going forward.
Between Jan. 21 and Jan. 29, executives from American Express sold 357,758 shares through direct sales and options exercises for a total cash-out of $21.2 million. While AmEx executives may have sold a lot of shares, it doesn't necessarily mean that they are trying to get out before the bottom falls out from under them. According to a company spokesperson, there are limited windows during the year when executives can buy or sell shares, such as after the release of earnings.
Like most companies, American Express has rules for executives, with minimum ownership requirements. After the sales occurred, the sellers still met all of the company requirements. In fact, AmEx was one of the financial companies with decent insider ownership as of year end 2011.
|Company||% Insider Ownership*|
|Capital One Financial Corp. (NYSE:COF)||2.91%|
|JPMorgan Chase & Co. (NYSE:JPM)||0.81%|
|Citigroup Inc. (NYSE:C)||0.19%|
|Bank of America Corp (NYSE:BAC)||0.07%|
All of the companies listed above had insider transactions throughout January, according to Yahoo! Finance, so the share sales from AmEx executives is not a one-off, troublesome event. It's not uncommon for insiders to buy and sell shares throughout the year, so investors need to keep the transactions in perspective.
Money, money, money... Here at the Fool, insider ownership is one of the key statistics used to evaluate a company. But while it's an important factor, it's not everything. Investors should look at insider ownership -- and so, by degree -- insider selling, with an eye toward context.
In the current era of executive compensation, a trend has developed in that more and more compensation is being "paid" in stock options and shares. Since this percentage of compensation can reach 60%, executives have to rely on the ability to sell those shares or execute options to get income. And with the company's stock at five-year highs, now is an optimal time for executives to cash out for maximum benefit.