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 before you buy or sell Encounter Resources Limited (ASX:ENR), you may well want to know whether insiders have been buying or selling.
What Is Insider Buying?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, most countries require that the company discloses such transactions to the market.
Insider transactions are not the most important thing when it comes to long-term investing. But logic dictates you should pay some attention to whether insiders are buying or selling shares. As Peter Lynch said, 'insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise'.
The Last 12 Months Of Insider Transactions At Encounter Resources
The MD & Executive Director William Robinson made the biggest insider purchase in the last 12 months. That single transaction was for AU$100k worth of shares at a price of AU$0.19 each. So it's clear an insider wanted to buy, even at a higher price than the current share price (being AU$0.18). Their view may have changed since then, but at least it shows they felt optimistic at the time. We always take careful note of the price insiders pay when purchasing 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.
While Encounter Resources insiders bought shares during the last year, they didn't sell. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
Encounter Resources is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Insiders at Encounter Resources Have Bought Stock Recently
It's good to see that Encounter Resources insiders have made notable investments in the company's shares. Not only was there no selling that we can see, but they collectively bought AU$400k worth of shares. That shows some optimism about the company's future.
Insider Ownership of Encounter Resources
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. A high insider ownership often makes company leadership more mindful of shareholder interests. Insiders own 18% of Encounter Resources shares, worth about AU$10m. We've certainly seen higher levels of insider ownership elsewhere, but these holdings are enough to suggest alignment between insiders and the other shareholders.
What Might The Insider Transactions At Encounter Resources Tell Us?
The recent insider purchases are heartening. And the longer term insider transactions also give us confidence. However, we note that the company didn't make a profit over the last twelve months, which makes us cautious. When combined with notable insider ownership, these factors suggest Encounter Resources insiders are well aligned, and that they may think the share price is too low. So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. To help with this, we've discovered 6 warning signs (2 can't be ignored!) that you ought to be aware of before buying any shares in Encounter Resources.
Of course Encounter Resources 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.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.