It is not uncommon to see companies perform well in the years after insiders buy shares. 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 Fortescue Metals Group Limited (ASX:FMG).
What Is Insider Selling?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, such insiders must disclose their trading activities, and not trade on inside information.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. 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 Fortescue Metals Group
In the last twelve months, the biggest single purchase by an insider was when Founder & Chairman of the Board John Andrew Forrest bought AU$193m worth of shares at a price of AU$19.33 per share. Even though the purchase was made at a significantly lower price than the recent price (AU$22.65), we still think insider buying is a positive. Because it occurred at a lower valuation, it doesn't tell us much about whether insiders might find today's price attractive.
Fortescue Metals Group insiders may have bought shares in the last year, but they didn't sell any. The chart below shows insider transactions (by companies and individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!
Fortescue Metals Group 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.
Insiders at Fortescue Metals Group Have Bought Stock Recently
Over the last quarter, Fortescue Metals Group insiders have spent a meaningful amount on shares. Specifically, Founder & Chairman of the Board John Andrew Forrest bought AU$193m worth of shares in that time, and we didn't record any sales whatsoever. This is a positive in our book as it implies some confidence.
I like to look at how many shares insiders own in a company, to help inform my view of how aligned they are with insiders. A high insider ownership often makes company leadership more mindful of shareholder interests. It's great to see that Fortescue Metals Group insiders own 0.6% of the company, worth about AU$447m. Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.
What Might The Insider Transactions At Fortescue Metals Group Tell Us?
It's certainly positive to see the recent insider purchase. We also take confidence from the longer term picture of insider transactions. When combined with notable insider ownership, these factors suggest Fortescue Metals Group insiders are well aligned, and quite possibly think the share price is too low. One for the watchlist, at least! While we like knowing what's going on with the insider's ownership and transactions, we make sure to also consider what risks are facing a stock before making any investment decision. Be aware that Fortescue Metals Group is showing 2 warning signs in our investment analysis, and 1 of those is significant...
Of course Fortescue Metals Group may not be the best stock to buy. So you may wish to see this free collection of high quality 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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