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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 Fire Rock Holdings Limited (HKG:1909).
Do Insider Transactions Matter?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, such insiders must disclose their trading activities, and not trade on inside information.
We don't think shareholders should simply follow insider transactions. 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 Fire Rock Holdings
Fire Rock Holdings Insider Transactions Over The Last Year
Over the last year, we can see that the biggest insider sale was by the , Po Hu, for HK$12m worth of shares, at about HK$4.80 per share. That means that an insider was selling shares at slightly below the current price (HK$5.76). When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. This single sale was just 13.5% of Po Hu's stake. Po Hu was the only individual insider to sell shares in the last twelve months.
Po Hu divested 8.8m shares over the last 12 months at an average price of CN¥4.49. 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!
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Insider Ownership
For a common shareholder, it is worth checking how many shares are held by company 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. Fire Rock Holdings insiders own about HK$1.1b worth of shares (which is 62% 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.