We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So before you buy or sell Fortune Minerals Limited (TSE:FT), you may well want to know whether insiders have been buying or selling.
What Is Insider Buying?
Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock in the company. However, rules govern insider transactions, and certain disclosures are required.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But equally, we would consider it foolish to ignore insider transactions altogether. For example, a Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year.
See our latest analysis for Fortune Minerals
Fortune Minerals Insider Transactions Over The Last Year
In the last twelve months, the biggest single purchase by an insider was when Chairman of the Board Mahendra Naik bought CA$75k worth of shares at a price of CA$0.05 per share. Even though the purchase was made at a significantly lower price than the recent price (CA$0.065), we still think insider buying is a positive. Because it occurred at a lower valuation, it doesn't tell us much about whether insiders might find today's price attractive.
You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
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).
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. We usually like to see fairly high levels of insider ownership. Based on our data, Fortune Minerals insiders have about 4.3% of the stock, worth approximately CA$1.0m. However, it's possible that insiders might have an indirect interest through a more complex structure. I generally like to see higher levels of ownership.
So What Do The Fortune Minerals Insider Transactions Indicate?
There haven't been any insider transactions in the last three months -- that doesn't mean much. On a brighter note, the transactions over the last year are encouraging. While we have no worries about the insider transactions, we'd be more comfortable if they owned more Fortune Minerals stock. Along with insider transactions, I recommend checking if Fortune Minerals is growing revenue. This free chart of historic revenue and earnings should make that easy.
Of course Fortune Minerals 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
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