It is not uncommon to see companies perform well in the years after insiders buy shares. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So we'll take a look at whether insiders have been buying or selling shares in Eminence Enterprise Limited (HKG:616).
What Is Insider Buying?
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 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. For example, a Columbia University study found that 'insiders are more likely to engage in open market purchases of their own company’s stock when the firm is about to reveal new agreements with customers and suppliers'.
Eminence Enterprise Insider Transactions Over The Last Year
In the last twelve months, the biggest single purchase by an insider was when Rong Hu bought HK$3.5m worth of shares at a price of HK$0.081 per share. That means that an insider was happy to buy shares at above the current price of HK$0.068. It's very possible they regret the purchase, but it's more likely they are bullish about the company. 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. Rong Hu was the only individual insider to buy shares in the last twelve months.
Rong Hu purchased 176.1m shares over the year. The average price per share was HK$0.076. You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
Eminence Enterprise is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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. I reckon it's a good sign if insiders own a significant number of shares in the company. Insiders own 23% of Eminence Enterprise shares, worth about HK$47m. 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 Eminence Enterprise Tell Us?
The recent insider purchase is heartening. And the longer term insider transactions also give us confidence. Given that insiders also own a fair bit of Eminence Enterprise we think they are probably pretty confident of a bright future. Along with insider transactions, I recommend checking if Eminence Enterprise is growing revenue. This free chart of historic revenue and earnings should make that easy.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity and low debt.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.