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 Sky Metals Limited (ASX:SKY), you may well want to know whether insiders have been buying or selling.
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.
Insider transactions are not the most important thing when it comes to long-term investing. 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'.
Sky Metals Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider purchase was by Non-Executive Chairman Norman Seckold for AU$440k worth of shares, at about AU$0.22 per share. So it's clear an insider wanted to buy, at around the current price, which is AU$0.23. 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. If someone buys shares at well below current prices, it's a good sign on balance, but keep in mind they may no longer see value. Happily, the Sky Metals insiders decided to buy shares at close to current prices.
In the last twelve months Sky Metals insiders were buying shares, but not selling. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
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 of Sky Metals
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. I reckon it's a good sign if insiders own a significant number of shares in the company. It appears that Sky Metals insiders own 17% of the company, worth about AU$11m. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
So What Do The Sky Metals Insider Transactions Indicate?
It doesn't really mean much that no insider has traded Sky Metals shares in the last quarter. However, our analysis of transactions over the last year is heartening. Insiders do have a stake in Sky Metals and their transactions don't cause us concern. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Sky Metals. When we did our research, we found 4 warning signs for Sky Metals (1 can't be ignored!) that we believe deserve your full attention.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting 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.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.