We often see insiders buying up shares in companies that perform well over the long term. On the other hand, we'd be remiss not to mention that insider sales have been known to precede tough periods for a business. So we'll take a look at whether insiders have been buying or selling shares in Lynas Rare Earths Limited (ASX:LYC).
What Is Insider Buying?
It's quite normal to see company insiders, such as board members, trading in company stock, from time to time. However, such insiders must disclose their trading activities, and not trade on inside information.
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 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'.
Lynas Rare Earths Insider Transactions Over The Last Year
In the last twelve months, the biggest single sale by an insider was when the MD, CEO & Director, Amanda Lacaze, sold AU$3.5m worth of shares at a price of AU$5.05 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of AU$6.23. We generally consider it a negative if insiders have been selling, especially if they did so below the current price, because it implies that they considered a lower price to be reasonable. However, while insider selling is sometimes discouraging, it's only a weak signal. We note that the biggest single sale was only 20% of Amanda Lacaze's holding. The only individual insider seller over the last year was Amanda Lacaze.
Amanda Lacaze ditched 1.80m shares over the year. The average price per share was AU$3.42. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
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Insiders at Lynas Rare Earths Have Sold Stock Recently
Over the last three months, we've seen notably more insider selling, than insider buying, at Lynas Rare Earths. We note MD, CEO & Director Amanda Lacaze cashed in AU$3.5m worth of shares. Meanwhile Non-Executive Director Vanessa Guthrie bought AU$29k worth , as we said above . Because the selling vastly outweighs the buying, we'd say this is a somewhat bearish sign.
Does Lynas Rare Earths Boast High Insider Ownership?
Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. A high insider ownership often makes company leadership more mindful of shareholder interests. It appears that Lynas Rare Earths insiders own 1.1% of the company, worth about AU$59m. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
What Might The Insider Transactions At Lynas Rare Earths Tell Us?
The insider sales have outweighed the insider buying, at Lynas Rare Earths, in the last three months. Zooming out, the longer term picture doesn't give us much comfort. Insider ownership isn't particularly high, so this analysis makes us cautious about the company. We'd practice some caution before buying! 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. While conducting our analysis, we found that Lynas Rare Earths has 4 warning signs and it would be unwise to ignore them.
Of course Lynas Rare Earths 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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