U.S. Markets close in 6 hrs 29 mins

Should You Take Comfort From Insider Transactions At Next Digital Limited (HKG:282)?

Simply Wall St

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

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 Next Digital Limited (HKG:282).

What Is Insider Selling?

Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock on the market. However, such insiders must disclose their trading activities, and not trade on inside information.

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. 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'.

See our latest analysis for Next Digital

The Last 12 Months Of Insider Transactions At Next Digital

Over the last year, we can see that the biggest insider purchase was by Non-Executive Chairman Chee Ying Lai for HK$1.1m worth of shares, at about HK$1.31 per share. That means that an insider was happy to buy shares at above the current price of HK$0.27. It's very possible they regret the purchase, but it's more likely they are bullish about the company. To us, it's very important to consider the price insiders pay for shares is very important. As a general rule, we feel more positive about a stock if insiders have bought shares at above current prices, because that suggests they viewed the stock as good value, even at a higher price.

Over the last year, we can see that insiders have bought 63.3m shares worth HK$16m. While Next Digital insiders bought shares last year, they didn't sell. They paid about HK$0.26 on average. Although they bought at below the recent share price, it is good to see that insiders are willing to invest in the company. You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!

SEHK:282 Recent Insider Trading, July 20th 2019

Next Digital 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.

Insider Ownership of Next Digital

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. I reckon it's a good sign if insiders own a significant number of shares in the company. Next Digital insiders own 77% of the company, currently worth about HK$557m based on the recent share price. This kind of significant ownership by insiders does generally increase the chance that the company is run in the interest of all shareholders.

What Might The Insider Transactions At Next Digital Tell Us?

The fact that there have been no Next Digital insider transactions recently certainly doesn't bother us. However, our analysis of transactions over the last year is heartening. It would be great to see more insider buying, but overall it seems like Next Digital insiders are reasonably well aligned (owning significant chunk of the company's shares) and optimistic for the future. Along with insider transactions, I recommend checking if Next Digital is growing revenue. This free chart of historic revenue and earnings should make that easy.

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 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.