Should You Be Worried About Insider Transactions At Elmo Software Limited (ASX:ELO)?

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 we’ll take a look at whether insiders have been buying or selling shares in Elmo Software Limited (ASX:ELO).

What Is Insider Selling?

Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock in the company. However, such insiders must disclose their trading activities, and not trade on inside information.

Insider transactions are not the most important thing when it comes to long-term investing. But logic dictates you should pay some attention to whether insiders are buying or selling shares. 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

Elmo Software Insider Transactions Over The Last Year

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$6.61. 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. This single sale was just 9.7% of Danny Lessem’s stake. Danny Lessem was the only individual insider to sell over the last year.

The chart below shows insider transactions (by individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!

ASX:ELO Recent Insider Trading, January 27th 2020
ASX:ELO Recent Insider Trading, January 27th 2020

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Does Elmo Software Boast High Insider Ownership?

For a common shareholder, it is worth checking how many shares are held by company insiders. A high insider ownership often makes company leadership more mindful of shareholder interests. Insiders own 17% of Elmo Software shares, worth about AU$85m. We’ve certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.

So What Does This Data Suggest About Elmo Software Insiders?

It doesn’t really mean much that no insider has traded Elmo Software shares in the last quarter. Our analysis of Elmo Software insider transactions leaves us cautious. But we do like the fact that insiders own a fair chunk of the company. If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

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, but not derivative transactions.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.