Should You Take Comfort From Insider Transactions At Fortescue Metals Group Limited (ASX:FMG)?

We’ve lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So before you buy or sell Fortescue Metals Group Limited (ASX:FMG), you may well want to know whether insiders have been buying or selling.

What Is Insider Selling?

It’s quite normal to see company insiders, such as board members, trading in company stock, from time to time. However, rules govern insider transactions, including certain disclosures.

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 Colombia 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’.

See our latest analysis for Fortescue Metals Group

Fortescue Metals Group Insider Transactions Over The Last Year

Over the last year, we can see that the biggest insider purchase was by Chairman of the Board John Andrew Forrest for AU$23m worth of shares, at about AU$3.95 per share. That means that even when the share price was higher, an insider wanted to purchase shares. It’s very possible they regret the purchase, but it’s more likely they are bullish about the company. We generally consider it a positive if insiders have been buying on market, even above the current price.

In the last twelve months insiders paid AU$38m for 9.83m shares purchased. In total, Fortescue Metals Group insiders bought more than they sold over the last year. They paid about AU$3.89 on average. I’d consider this a positive as it suggests insiders see value at around the current price, which is AU$3.85. You can see the insider transactions over the last year depicted in the chart below. By clicking on the graph below, you can see the precise details of each insider transaction!

ASX:FMG Insider Trading November 27th 18
ASX:FMG Insider Trading November 27th 18

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

Fortescue Metals Group Insiders Bought Stock Recently

Over the last quarter, Fortescue Metals Group insiders have spent a meaningful amount on shares. Not only was there no selling that we can see, but they collectively bought US$38m worth of shares. This makes one think the business has some good points.

Insider Ownership of Fortescue Metals Group

For a common shareholder, it is worth checking how many shares are held by company insiders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Insiders own 1.1% of Fortescue Metals Group shares, worth about AU$96m. While this is strong but not in the top group, when it comes to insider ownership, it’s enough to indicate some alignment between management and smaller shareholders.

So What Do The Fortescue Metals Group Insider Transactions Indicate?

It is good to see recent purchasing. And the longer term insider transactions also give us confidence. While the overall levels of insider ownership are below what we’d like to see, the history of transactions imply that Fortescue Metals Group insiders are reasonably well aligned, and optimistic for the future. Therefore, you should should definitely take a look at this FREE report showing analyst forecasts for Fortescue Metals Group.

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.

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 editorial-team@simplywallst.com.