Shareholders might want to keep a close eye on Lotus Resources Limited (ASX:LOT) after insiders sold AU$1.7m stock earlier this year

While Lotus Resources Limited (ASX:LOT) shareholders have enjoyed a good week with stock up 14%, they need remain vigilant. The fact that insiders chose to dispose of AU$1.7m worth of stock in the past 12 months even though prices were relatively low could be indicative of some anticipated weakness.

While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, we would consider it foolish to ignore insider transactions altogether.

See our latest analysis for Lotus Resources

Lotus Resources Insider Transactions Over The Last Year

The Non-Executive Director, Grant Burnaford Davey, made the biggest insider sale in the last 12 months. That single transaction was for AU$1.7m worth of shares at a price of AU$0.12 each. That means that an insider was selling shares at slightly below the current price (AU$0.17). As a general rule we consider it to be discouraging when insiders are selling below the current price, because it suggests they were happy with a lower valuation. However, while insider selling is sometimes discouraging, it's only a weak signal. This single sale was just 48% of Grant Burnaford Davey's stake. Grant Burnaford Davey was the only individual insider to sell over the last year. Notably Grant Burnaford Davey was also the biggest buyer, having purchased AU$213k worth of shares.

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!

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Does Lotus Resources Boast High 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. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Lotus Resources insiders own about AU$36m worth of shares. That equates to 19% of the company. 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 Lotus Resources Insiders?

There haven't been any insider transactions in the last three months -- that doesn't mean much. Our analysis of Lotus Resources insider transactions leaves us cautious. The modest level of insider ownership is, at least, some comfort. So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. To help with this, we've discovered 4 warning signs (2 are a bit concerning!) that you ought to be aware of before buying any shares in Lotus Resources.

Of course Lotus Resources 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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