Stock Analysis

Read This Before Buying Cannasouth Limited (NZSE:CBD) Shares

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NZSE:CBD
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It is not uncommon to see companies perform well in the years after insiders buy shares. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So shareholders might well want to know whether insiders have been buying or selling shares in Cannasouth Limited (NZSE:CBD).

What Is Insider Buying?

It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, most countries require that the company discloses such transactions to the market.

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. 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 Cannasouth

The Last 12 Months Of Insider Transactions At Cannasouth

Over the last year, we can see that the biggest insider sale was by the insider, Adam Sorensen, for NZ$699k worth of shares, at about NZ$0.53 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of NZ$0.57. When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. We note that the biggest single sale was only 20% of Adam Sorensen's holding.

In the last twelve months insiders purchased 170.00k shares for NZ$77k. But they sold 4.25m shares for NZ$2.7m. In total, Cannasouth insiders sold more than they bought over the last year. The sellers received a price of around NZ$0.63, on average. It's not particularly great to see insiders were selling shares at below recent prices. Of course, the sales could be motivated for a multitude of reasons, so we shouldn't jump to conclusions. You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!

insider-trading-volume
NZSE:CBD Insider Trading Volume February 17th 2021

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Insiders at Cannasouth Have Sold Stock Recently

We've seen more insider selling than insider buying at Cannasouth recently. In that time, insider Nicholas Foreman dumped NZ$802k worth of shares. On the flip side, Independent Non-Executive Chairman Anthony Ho spent NZ$11k on purchasing shares. Because the selling vastly outweighs the buying, we'd say this is a somewhat bearish sign.

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. It's great to see that Cannasouth insiders own 55% of the company, worth about NZ$39m. This kind of significant ownership by insiders does generally increase the chance that the company is run in the interest of all shareholders.

So What Does This Data Suggest About Cannasouth Insiders?

Unfortunately, there has been more insider selling of Cannasouth stock, than buying, in the last three months. Despite some insider buying, the longer term picture doesn't make us feel much more positive. The company boasts high insider ownership, but we're a little hesitant, given the history of share sales. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Cannasouth. Our analysis shows 5 warning signs for Cannasouth (1 makes us a bit uncomfortable!) and we strongly recommend you look at these before investing.

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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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