While Reddit, Inc. (NYSE:RDDT) shareholders have had a good week with the stock up 12%, they shouldn't let their guards down. The fact that insiders chose to dispose of US$55m worth of stock in the past 12 months even though prices were relatively low could be indicative of some anticipated weakness.

While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, we do think it is perfectly logical to keep tabs on what insiders are doing.

The Last 12 Months Of Insider Transactions At Reddit

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. That means that even when the share price was below the current price of US$66.17, 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. However, while insider selling is sometimes discouraging, it's only a weak signal. This single sale was just 23% of Jennifer Wong's stake.

Happily, we note that in the last year insiders paid US$442k for 13.00k shares. On the other hand they divested 1.51m shares, for US$55m. In total, Reddit insiders sold more than they bought over the last year. 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!

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Reddit Insiders Are Selling The Stock

The last quarter saw substantial insider selling of Reddit shares. Specifically, Independent Director Porter Gale ditched US$3.4m 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.

Does Reddit Boast High Insider Ownership?

Many investors like to check how much of a company is owned by insiders. A high insider ownership often makes company leadership more mindful of shareholder interests. It's great to see that Reddit insiders own 4.9% of the company, worth about US$535m. I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.

So What Do The Reddit Insider Transactions Indicate?

An insider sold Reddit shares recently, but they didn't buy any. And our longer term analysis of insider transactions didn't bring confidence, either. While insiders do own a lot of shares in the company (which is good), our analysis of their transactions doesn't make us feel confident about the company. So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. Every company has risks, and we've spotted 1 warning sign for Reddit you should know about.

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.