We often see insiders buying up shares in companies that perform well over the long term. 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 before you buy or sell China Ludao Technology Company Limited (HKG:2023), you may well want to know whether insiders have been buying or selling.

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, rules govern insider transactions, and certain disclosures are required.

We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But equally, we would consider it foolish to ignore insider transactions altogether. For example, a Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year.

See our latest analysis for China Ludao Technology

The Last 12 Months Of Insider Transactions At China Ludao Technology

Over the last year, we can see that the biggest insider purchase was by Executive Chairman & CEO Yuerong Yu for HK$2.0m worth of shares, at about HK$1.00 per share. So it's clear an insider wanted to buy, even at a higher price than the current share price (being HK$0.90). While their view may have changed since the purchase was made, this does at least suggest they have had confidence in the company's future. In our view, the price an insider pays for shares is very important. As a general rule, we feel more positive about a stock when an insider has bought shares at above current prices, because that suggests they viewed the stock as good value, even at a higher price. Yuerong Yu was the only individual insider to buy shares in the last twelve months.

Yuerong Yu bought a total of 9.45m shares over the year at an average price of HK$1.02. 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!

China Ludao Technology is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Insider Ownership of China Ludao Technology

Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. 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's great to see that China Ludao Technology insiders own 47% of the company, worth about HK$210m. I like to see this level of insider ownership, because it increases the chances that management are thinking about the best interests of shareholders.

So What Do The China Ludao Technology Insider Transactions Indicate?

It doesn't really mean much that no insider has traded China Ludao Technology shares in the last quarter. On a brighter note, the transactions over the last year are encouraging. With high insider ownership and encouraging transactions, it seems like China Ludao Technology insiders think the business has merit. 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. When we did our research, we found 2 warning signs for China Ludao Technology (1 is significant!) that we believe deserve your full attention.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.