Should You Take Comfort From Insider Transactions At IODM Limited (ASX:IOD)?

It is not uncommon to see companies perform well in the years after insiders buy shares. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So before you buy or sell IODM Limited (ASX:IOD), you may well want to know whether insiders have been buying or selling.

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, rules govern insider transactions, and certain disclosures are required.

We don't think shareholders should simply follow insider transactions. But equally, we would consider it foolish to ignore insider transactions altogether. As Peter Lynch said, 'insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise'.

Check out our latest analysis for IODM

The Last 12 Months Of Insider Transactions At IODM

The Non-Executive Director Anthony Smith made the biggest insider purchase in the last 12 months. That single transaction was for AU$236k worth of shares at a price of AU$0.17 each. That means that an insider was happy to buy shares at around the current price of AU$0.17. Of course they may have changed their mind. But this suggests they are optimistic. While we always like to see insider buying, it's less meaningful if the purchases were made at much lower prices, as the opportunity they saw may have passed. Happily, the IODM insiders decided to buy shares at close to current prices. We note that Anthony Smith was both the biggest buyer and the biggest seller.

Over the last year, we can see that insiders have bought 5.28m shares worth AU$839k. But insiders sold 872.00k shares worth AU$113k. In total, IODM insiders bought more than they sold over the last year. The chart below shows insider transactions (by companies and individuals) over the last year. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

There are always plenty of stocks that insiders are buying. So if that suits your style you could check each stock one by one or you could take a look at this free list of companies. (Hint: insiders have been buying them).

IODM Insiders Bought Stock Recently

Over the last three months, we've seen a bit of insider buying at IODM. Non-Executive Director Anthony Smith bought AU$55k worth of shares in that time. It's great to see that insiders are only buying, not selling. However, in this case the amount invested recently is quite small.

Insider Ownership of IODM

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. IODM insiders own about AU$42m worth of shares (which is 45% of the company). Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.

So What Does This Data Suggest About IODM Insiders?

It is good to see the recent insider purchase. We also take confidence from the longer term picture of insider transactions. However, we note that the company didn't make a profit over the last twelve months, which makes us cautious. When combined with notable insider ownership, these factors suggest IODM insiders are well aligned, and quite possibly think the share price is too low. Looks promising! So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. For example, IODM has 4 warning signs (and 2 which are concerning) we think you should know about.

But note: IODM may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE 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, but not derivative transactions.

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This article by Simply Wall St is general in nature. 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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