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 we'll take a look at whether insiders have been buying or selling shares in Pacific Edge Limited (NZSE:PEB).
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 in the 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'.
The Last 12 Months Of Insider Transactions At Pacific Edge
Over the last year, we can see that the biggest insider purchase was by insider John Duncan for NZ$125k worth of shares, at about NZ$0.15 per share. That means that even when the share price was higher than NZ$0.12 (the recent price), an insider wanted to purchase shares. 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. Generally speaking, it catches our eye when insiders have purchased shares at above current prices, as it suggests they believed the shares were worth buying, even at a higher price.
Pacific Edge insiders may have bought shares in the last year, but they didn't sell any. The average buy price was around NZ$0.17. 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. By clicking on the graph below, you can see the precise details of each insider transaction!
Pacific Edge 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.
Are Pacific Edge Insiders Buying Or Selling?
There was some insider buying at Pacific Edge over the last quarter. insider Tony Rankin purchased NZ$10k worth of shares in that period. It's good to see the insider buying, as well as the lack of recent sellers. But the amount invested in the last three months isn't enough for us too put much weight on it, as a single factor.
Many investors like to check how much of a company is owned by insiders. We usually like to see fairly high levels of insider ownership. From our data, it seems that Pacific Edge insiders own 7.2% of the company, worth about NZ$5.8m. We do generally prefer see higher levels of insider ownership.
So What Does This Data Suggest About Pacific Edge Insiders?
Our data shows a little insider buying, but no selling, in the last three months. The net investment is not enough to encourage us much. On a brighter note, the transactions over the last year are encouraging. While we have no worries about the insider transactions, we'd be more comfortable if they owned more Pacific Edge 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. While conducting our analysis, we found that Pacific Edge has 5 warning signs and it would be unwise to ignore them.
But note: Pacific Edge 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 firstname.lastname@example.org. 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.
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