As Lovisa Holdings Limited (ASX:LOV) drops to AU$1.8b market cap, insiders might rethink their AU$1.4m stock purchase earlier this year

Insiders who acquired AU$1.4m worth of Lovisa Holdings Limited's (ASX:LOV) stock at an average price of AU$19.86 in the past 12 months may be dismayed by the recent 6.8% price decline. Insiders buy with the expectation to see their investments rise in value over a period of time. However, recent losses have rendered their above investment worth AU$1.1m which is not ideal.

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

Check out our latest analysis for Lovisa Holdings

The Last 12 Months Of Insider Transactions At Lovisa Holdings

Over the last year, we can see that the biggest insider purchase was by CEO & Director Victor Herrero for AU$998k worth of shares, at about AU$20.03 per share. That means that even when the share price was higher than AU$16.31 (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. To us, it's very important to consider the price insiders pay for shares. It is generally more encouraging if they paid above the current price, as it suggests they saw value, even at higher levels.

Lovisa Holdings 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. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!

Lovisa Holdings 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.

Does Lovisa Holdings Boast High Insider Ownership?

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. Lovisa Holdings insiders own 45% of the company, currently worth about AU$782m based on the recent share price. 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 Lovisa Holdings Tell Us?

There haven't been any insider transactions in the last three months -- that doesn't mean much. However, our analysis of transactions over the last year is heartening. With high insider ownership and encouraging transactions, it seems like Lovisa Holdings insiders think the business has merit. So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. Case in point: We've spotted 2 warning signs for Lovisa Holdings you should be aware of.

Of course Lovisa Holdings 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.