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It is not uncommon to see companies perform well in the years after insiders buy shares. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So we’ll take a look at whether insiders have been buying or selling shares in Energy Action Limited (ASX:EAX).
Do Insider Transactions Matter?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, most countries require that the company discloses such transactions to the market.
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 Columbia University study found that ‘insiders are more likely to engage in open market purchases of their own company’s stock when the firm is about to reveal new agreements with customers and suppliers’.
The Last 12 Months Of Insider Transactions At Energy Action
Over the last year, we can see that the biggest insider sale was by Member of Technical Advisory Board Ronald Watts for AU$199k worth of shares, at about AU$0.92 per share. While the sale doesn’t make us feel confident, we do note it was conducted at a price well above the current share price, which is AU$0.34. So it is hard to draw any strong conclusion from it. The only individual insider seller over the last year was Ronald Watts.
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!
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Insider Ownership of Energy Action
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. I reckon it’s a good sign if insiders own a significant number of shares in the company. Insiders own 23% of Energy Action shares, worth about AU$2.0m. 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 Energy Action Insider Transactions Indicate?
An insider sold stock recently, but they haven’t been buying. And even if we look to the last year, we didn’t see any purchases. But since Energy Action is profitable and growing, we’re not too worried by this. Insiders own shares, but we’re still pretty cautious, given the history of sales. We’d think twice before buying! I like to dive deeper into how a company has performed in the past. You can find historic revenue and earnings in this detailed graph.
But note: Energy Action 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.