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When a single insider purchases stock, it is typically not a major deal. However, when multiple insiders purchase stock, like in Earths Energy Limited's (ASX:EE1) instance, it's good news for shareholders.
While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, we would consider it foolish to ignore insider transactions altogether.
View our latest analysis for Earths Energy
Earths Energy Insider Transactions Over The Last Year
The insider Jason Peterson made the biggest insider purchase in the last 12 months. That single transaction was for AU$194k worth of shares at a price of AU$0.02 each. So it's clear an insider wanted to buy, even at a higher price than the current share price (being AU$0.01). Their view may have changed since then, but at least it shows they felt optimistic at the time. In our view, the price an insider pays 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.
Earths Energy insiders may have bought shares in the last year, but they didn't sell any. They paid about AU$0.016 on average. This is nice to see since it implies that insiders might see value around current prices. You can see the insider transactions (by companies and 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!
There are always plenty of stocks that insiders are buying. If investing in lesser known companies is your style, you could take a look at this free list of companies. (Hint: insiders have been buying them).
Does Earths Energy Boast High Insider Ownership?
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. I reckon it's a good sign if insiders own a significant number of shares in the company. Earths Energy insiders own about AU$3.7m worth of shares (which is 50% 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 Do The Earths Energy Insider Transactions Indicate?
The fact that there have been no Earths Energy 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 Earths Energy 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. Every company has risks, and we've spotted 4 warning signs for Earths Energy (of which 3 are potentially serious!) you should know about.