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Should You Take Comfort From Insider Transactions At Adairs Limited (ASX:ADH)?

Simply Wall St

It is not uncommon to see companies perform well in the years after insiders buy shares. On the other hand, we'd be remiss not to mention that insider sales have been known to precede tough periods for a business. So we'll take a look at whether insiders have been buying or selling shares in Adairs Limited (ASX:ADH).

What Is Insider Selling?

It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, such insiders must disclose their trading activities, and not trade on inside information.

We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But logic dictates you should pay some attention to whether insiders are buying or selling shares. For example, a Columbia University study found that 'insiders are more likely to engage in open market purchases of their own company’s stock when the firm is about to reveal new agreements with customers and suppliers'.

View our latest analysis for Adairs

Adairs Insider Transactions Over The Last Year

Over the last year, we can see that the biggest insider purchase was by insider Brett Blundy for AU$9.0m worth of shares, at about AU$1.69 per share. That implies that an insider found the current price of AU$1.85 per share to be enticing. 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. 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. In this case we're pleased to report that the insider purchases were made at close to current prices. Notably Brett Blundy was also the biggest seller.

In the last twelve months insiders purchased 11034934 shares for AU$18m. But they sold 2100000 for AU$4.0m. In total, Adairs insiders bought more than they sold over the last year. You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

ASX:ADH Recent Insider Trading, October 15th 2019

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.

Does Adairs Boast High Insider Ownership?

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. We usually like to see fairly high levels of insider ownership. Adairs insiders own about AU$75m worth of shares. That equates to 23% of the company. While this is a strong but not outstanding level of insider ownership, it's enough to indicate some alignment between management and smaller shareholders.

So What Do The Adairs Insider Transactions Indicate?

It doesn't really mean much that no insider has traded Adairs shares in the last quarter. But insiders have shown more of an appetite for the stock, over the last year. Overall we don't see anything to make us think Adairs insiders are doubting the company, and they do own shares. Therefore, you should should definitely take a look at this FREE report showing analyst forecasts for Adairs.

Of course Adairs 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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. Thank you for reading.