Insider Traders Lose AU$38k As Red Metal Drops

Insiders who acquired AU$162k worth of Red Metal Limited's (ASX:RDM) stock at an average price of AU$0.11 in the past 12 months may be dismayed by the recent 13% price decline. Insiders invest with the hopes of seeing their money grow in value over time. However, as a result of recent losses, their initial investment is now only worth AU$125k, which is not what they expected.

Although we don't think shareholders should simply follow insider transactions, we would consider it foolish to ignore insider transactions altogether.

See our latest analysis for Red Metal

Red Metal Insider Transactions Over The Last Year

In the last twelve months, the biggest single purchase by an insider was when Independent Non-Executive Director Joshua Pitt bought AU$162k worth of shares at a price of AU$0.11 per share. That means that even when the share price was higher than AU$0.083 (the recent price), 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 always take careful note of the price insiders pay when purchasing shares. It is encouraging to see an insider paid above the current price for shares, as it suggests they saw value, even at higher levels. Joshua Pitt was the only individual insider to buy during the last year.

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!

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

Insider Ownership Of Red Metal

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. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. It appears that Red Metal insiders own 17% of the company, worth about AU$3.8m. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.

So What Do The Red Metal Insider Transactions Indicate?

It is good to see the recent insider purchase. And an analysis of the transactions over the last year also gives us confidence. However, we note that the company didn't make a profit over the last twelve months, which makes us cautious. Insiders likely see value in Red Metal shares, given these transactions (along with notable insider ownership of the company). So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. Every company has risks, and we've spotted 5 warning signs for Red Metal (of which 1 is a bit concerning!) you should know about.

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.

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 of direct interests only, but not derivative transactions or indirect interests.

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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.