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Should You Take Comfort From Insider Transactions At Lap Kei Engineering (Holdings) Limited (HKG:1690)?

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 shareholders might well want to know whether insiders have been buying or selling shares in Lap Kei Engineering (Holdings) Limited (HKG:1690).

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 don't think shareholders should simply follow insider transactions. 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.

View our latest analysis for Lap Kei Engineering (Holdings)

The Last 12 Months Of Insider Transactions At Lap Kei Engineering (Holdings)

Over the last year, we can see that the biggest insider purchase was by Executive Chairman Kang Kwong Wong for HK$2.0m worth of shares, at about HK$0.16 per share. That means that an insider was happy to buy shares at above the current price of HK$0.067. 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. It is generally more encouraging if they paid above the current price, as it suggests they saw value, even at higher levels.

Lap Kei Engineering (Holdings) insiders may have bought shares in the last year, but they didn't sell any. The average buy price was around HK$0.14. This is nice to see since it implies that insiders might see value around current prices. You can see the insider transactions (by 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!

SEHK:1690 Recent Insider Trading, March 13th 2020

Lap Kei Engineering (Holdings) is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Lap Kei Engineering (Holdings) Insiders Bought Stock Recently

It's good to see that Lap Kei Engineering (Holdings) insiders have made notable investments in the company's shares. We can see that Executive Chairman Kang Kwong Wong paid HK$539k for shares in the company. No-one sold. That shows some optimism about the company's future.

Insider Ownership

Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. A high insider ownership often makes company leadership more mindful of shareholder interests. Insiders own 8.0% of Lap Kei Engineering (Holdings) shares, worth about HK$7.9m, according to our data. We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. Overall, this level of ownership isn't that impressive, but it's certainly better than nothing!

So What Do The Lap Kei Engineering (Holdings) Insider Transactions Indicate?

The recent insider purchase is heartening. We also take confidence from the longer term picture of insider transactions. But on the other hand, the company made a loss last year, which makes us a little cautious. On this analysis the only slight negative we see is the fairly low (overall) insider ownership; their transactions suggest that they are quite positive on Lap Kei Engineering (Holdings) stock. So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. Case in point: We've spotted 4 warning signs for Lap Kei Engineering (Holdings) you should be aware of, and 1 of these is a bit unpleasant.

But note: Lap Kei Engineering (Holdings) may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.

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.

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. Thank you for reading.