While Powell Industries, Inc. (NASDAQ:POWL) shareholders have enjoyed a good week with stock up 23%, they need remain vigilant. In spite of the relatively cheap prices, insiders made the decision to sell US$25m worth of stock in the last 12 months. This could be a warning indicator of vulnerabilities in the future.

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.

Powell Industries Insider Transactions Over The Last Year

Over the last year, we can see that the biggest insider sale was by the insider, Thomas Powell, for US$4.9m worth of shares, at about US$96.59 per share. That means that an insider was selling shares at slightly below the current price (US$206). 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. We note that the biggest single sale was only 2.2% of Thomas Powell's holding.

Insiders in Powell Industries didn't buy any shares in the last year. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

I will like Powell Industries better if I see some big insider buys. While we wait, check out this free list of undervalued and small cap stocks with considerable, recent, insider buying.

Powell Industries Insiders Are Selling The Stock

The last three months saw significant insider selling at Powell Industries. Specifically, insiders ditched US$1.4m 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 Powell Industries Boast High Insider Ownership?

Many investors like to check how much of a company is owned by insiders. I reckon it's a good sign if insiders own a significant number of shares in the company. Powell Industries insiders own 22% of the company, currently worth about US$551m based on the recent share price. Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.

So What Does This Data Suggest About Powell Industries Insiders?

Insiders haven't bought Powell Industries stock in the last three months, but there was some selling. And even if we look at the last year, we didn't see any purchases. But since Powell Industries is profitable and growing, we're not too worried by this. It is good to see high insider ownership, but the insider selling leaves us cautious. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Powell Industries. To assist with this, we've discovered 2 warning signs that you should run your eye over to get a better picture of Powell Industries.

But note: Powell Industries 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 of direct interests only, but not derivative transactions or indirect interests.

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