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 Gold Road Resources Limited (ASX:GOR).
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, 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. 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 Gold Road Resources
In the last twelve months, the biggest single sale by an insider was when the Executive Director of Exploration & Growth and Executive Director, Justin Osborne, sold AU$171k worth of shares at a price of AU$0.93 per share. That means that an insider was selling shares at slightly below the current price (AU$1.34). As a general rule we consider it to be discouraging when insiders are selling below the current price, because it suggests they were happy with a lower valuation. However, while insider selling is sometimes discouraging, it's only a weak signal. It is worth noting that this sale was only 4% of Justin Osborne's holding. Justin Osborne was the only individual insider to sell over the last year. Notably Justin Osborne was also the biggest buyer, having purchased AU$83k worth of shares.
Over the last year, we can see that insiders have bought 134k shares worth AU$83k. On the other hand they divested 284k shares, for AU$267k. Justin Osborne sold a total of 284k shares over the year at an average price of AU$0.94. The chart below shows insider transactions (by individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Does Gold Road Resources Boast High Insider Ownership?
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. It appears that Gold Road Resources insiders own 5.5% of the company, worth about AU$64m. While this is a strong but not outstanding level of insider ownership, it's enough to indicate some alignment between management and smaller shareholders.
So What Do The Gold Road Resources Insider Transactions Indicate?
There haven't been any insider transactions in the last three months -- that doesn't mean much. Still, the insider transactions at Gold Road Resources in the last 12 months are not very heartening. But we do like the fact that insiders own a fair chunk of the company. Therefore, you should should definitely take a look at this FREE report showing analyst forecasts for Gold Road Resources.
But note: Gold Road Resources 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.
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 email@example.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.