As ClearOne, Inc.'s market cap (NASDAQ:CLRO) drops to US$13m, insiders might be questioning their decision to buy earlier this year

The recent price decline of 12% in ClearOne, Inc.'s (NASDAQ:CLRO) stock may have disappointed insiders who bought US$2.3m worth of shares at an average price of US$1.30 in the past 12 months. This is not good as insiders invest based on expectations that their money will appreciate over time. However, as a result of recent losses, their original investment is now worth only US$985k.

While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, we would consider it foolish to ignore insider transactions altogether.

Before we look at these insider transactions though, you might like to know that our analysis indicates that CLRO is potentially overvalued!

The Last 12 Months Of Insider Transactions At ClearOne

Over the last year, we can see that the biggest insider purchase was by insider Edward Bagley for US$2.0m worth of shares, at about US$1.30 per share. That means that even when the share price was higher than US$0.55 (the recent price), an insider wanted to purchase shares. While their view may have changed since the purchase was made, this does at least suggest they have had confidence in the company's future. To us, it's very important to consider the price insiders pay for shares. Generally speaking, it catches our eye when insiders have purchased shares at above current prices, as it suggests they believed the shares were worth buying, even at a higher price.

In the last twelve months ClearOne insiders were buying shares, but not selling. 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!

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Insider Ownership Of ClearOne

For a common shareholder, it is worth checking how many shares are held by company 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. ClearOne insiders own 53% of the company, currently worth about US$7.0m based on the recent share price. I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.

So What Does This Data Suggest About ClearOne Insiders?

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. Judging from their transactions, and high insider ownership, ClearOne insiders feel good about the company's future. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing ClearOne. For example, ClearOne has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Of course ClearOne 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.