Stock Analysis

Read This Before Selling Encounter Resources Limited (ASX:ENR) Shares

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ASX:ENR
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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 Encounter Resources Limited (ASX:ENR), you may well want to know whether insiders have been buying or selling.

What Is Insider Selling?

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 would never suggest that investors should base their decisions solely on what the directors of a company have been doing. 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'.

Check out our latest analysis for Encounter Resources

The Last 12 Months Of Insider Transactions At Encounter Resources

In the last twelve months, the biggest single purchase by an insider was when MD & Executive Director William Robinson bought AU$100k worth of shares at a price of AU$0.19 per share. So it's clear an insider wanted to buy, even at a higher price than the current share price (being AU$0.18). Their view may have changed since then, but at least it shows they felt optimistic at the time. To us, it's very important to consider the price insiders pay for shares. As a general rule, we feel more positive about a stock if insiders have bought shares at above current prices, because that suggests they viewed the stock as good value, even at a higher price.

In the last twelve months Encounter Resources insiders were buying shares, but not selling. The chart below shows insider transactions (by companies and individuals) over the last year. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!

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ASX:ENR Insider Trading Volume December 30th 2020

Encounter Resources is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Insiders at Encounter Resources Have Bought Stock Recently

It's good to see that Encounter Resources insiders have made notable investments in the company's shares. Overall, three insiders shelled out AU$400k for shares in the company -- and none sold. This could be interpreted as suggesting a positive outlook.

Insider Ownership

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. Insiders own 18% of Encounter Resources shares, worth about AU$10m. 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 Does This Data Suggest About Encounter Resources Insiders?

The recent insider purchases are heartening. And the longer term insider transactions also give us confidence. But we don't feel the same about the fact the company is making losses. Insiders likely see value in Encounter Resources shares, given these transactions (along with notable insider ownership of the company). In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Encounter Resources. Our analysis shows 6 warning signs for Encounter Resources (2 are concerning!) and we strongly recommend you look at them before investing.

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.

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