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We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. 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 Flexiroam Limited (ASX:FRX).
What Is Insider Buying?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, rules govern insider transactions, and certain disclosures are required.
Insider transactions are not the most important thing when it comes to long-term investing. But it is perfectly logical to keep tabs on what insiders are doing. 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'.
Flexiroam Insider Transactions Over The Last Year
The insider Yip Ng Kay made the biggest insider purchase in the last 12 months. That single transaction was for AU$267k worth of shares at a price of AU$0.014 each. Although we like to see insider buying, we note that this large purchase was at significantly below the recent price of AU$0.062. Because the shares were purchased at a lower price, this particular buy doesn't tell us much about how insiders feel about the current share price.
In the last twelve months insiders purchased 26.72m shares for AU$267k. On the other hand they divested 461.00k shares, for AU$7.1k. In the last twelve months there was more buying than selling by Flexiroam insiders. The average buy price was around AU$0.01. We don't deny that it is nice to see insiders buying stock in the company. However, you should keep in mind that they bought when the share price was meaningfully below today's levels. 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!
Flexiroam 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 Flexiroam
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. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Flexiroam insiders own about AU$17m worth of shares (which is 55% of the company). Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders.
So What Does This Data Suggest About Flexiroam 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. It would be great to see more insider buying, but overall it seems like Flexiroam insiders are reasonably well aligned (owning significant chunk of the company's shares) and optimistic for the future. So while it's helpful to know what insiders are doing in terms of buying or selling, it's also helpful to know the risks that a particular company is facing. Be aware that Flexiroam is showing 5 warning signs in our investment analysis, and 2 of those make us uncomfortable...
But note: Flexiroam 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.
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.
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