We’ve lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So before you buy or sell Elmo Software Limited (ASX:ELO), you may well want to know whether insiders have been buying or selling.
Do Insider Transactions Matter?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, rules govern insider transactions, and certain disclosures are required.
We don’t think shareholders should simply follow insider transactions. But equally, we would consider it foolish to ignore insider transactions altogether. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year.
See our latest analysis for Elmo Software
The Last 12 Months Of Insider Transactions At Elmo Software
The Co-Founder, Danny Lessem, made the biggest insider sale in the last 12 months. That single transaction was for AU$7.0m worth of shares at a price of AU$6.00 each. So it’s clear an insider wanted to take some cash off the table, even below the current price of AU$6.93. 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. We note that the biggest single sale was only 9.7% of Danny Lessem’s holding. Danny Lessem was the only individual insider to sell over the last year.
You can see a visual depiction of insider transactions (by 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 Elmo Software better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Insider Ownership of Elmo Software
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. A high insider ownership often makes company leadership more mindful of shareholder interests. It appears that Elmo Software insiders own 15% of the company, worth about AU$89m. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
So What Do The Elmo Software Insider Transactions Indicate?
The fact that there have been no Elmo Software insider transactions recently certainly doesn’t bother us. We don’t take much encouragement from the transactions by Elmo Software insiders. The modest level of insider ownership is, at least, some comfort. So these insider transactions can help us build a thesis about the stock, but it’s also worthwhile knowing the risks facing this company. Case in point: We’ve spotted 3 warning signs for Elmo Software you should be aware of.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of interesting companies, that have HIGH return on equity 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.
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