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 Mayfield Childcare Limited (ASX:MFD), you may well want to know whether insiders have been buying or selling.
What Is Insider Buying?
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 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'.
Mayfield Childcare Insider Transactions Over The Last Year
The insider Malcolm Ross made the biggest insider purchase in the last 12 months. That single transaction was for AU$71k worth of shares at a price of AU$0.69 each. Even though the purchase was made at a significantly lower price than the recent price (AU$0.88), we still think insider buying is a positive. Because the shares were purchased at a lower price, this particular buy doesn't tell us much about how insiders feel about the current share price.
You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Mayfield Childcare is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Does Mayfield Childcare 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. Our data indicates that Mayfield Childcare insiders own about AU$1.8m worth of shares (which is 6.3% of the company). We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. Overall, this level of ownership isn't that impressive, but it's certainly better than nothing!
So What Does This Data Suggest About Mayfield Childcare Insiders?
It's certainly positive to see the recent insider purchase. We also take confidence from the longer term picture of insider transactions. On this analysis the only slight negative we see is the fairly low (overall) insider ownership; their transactions suggest that they are quite positive on Mayfield Childcare stock. So while it's helpful to know what insiders are doing in terms of buying or selling, it's also helpful to know the risks that a particular company is facing. While conducting our analysis, we found that Mayfield Childcare has 3 warning signs and it would be unwise to ignore them.
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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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. 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.
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