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 before you buy or sell Tower Resources plc (LON:TRP), you may well want to know whether insiders have been buying or selling.

What Is Insider Selling?

It is perfectly legal for company insiders, including board members, to buy and sell stock in a 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 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'.

See our latest analysis for Tower Resources

Tower Resources Insider Transactions Over The Last Year

Over the last year, we can see that the biggest insider purchase was by Chairman & CEO Jeremy Asher for UK£700k worth of shares, at about UK£0.0032 per share. That means that even when the share price was higher than UK£0.0023 (the recent price), an insider wanted to purchase shares. 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. Jeremy Asher was the only individual insider to buy shares in the last twelve months.

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!

 AIM:TRP Recent Insider Trading April 23rd 2020

Tower Resources is not the only stock that insiders are buying. For those who like to find winning investments this freelist of growing companies with recent insider purchasing, could be just the ticket.

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. Insiders own 35% of Tower Resources shares, worth about UK£989k. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.

What Might The Insider Transactions At Tower Resources Tell Us?

It doesn't really mean much that no insider has traded Tower Resources shares in the last quarter. On a brighter note, the transactions over the last year are encouraging. Insiders own shares in Tower Resources and we see no evidence to suggest they are worried about 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. When we did our research, we found 5 warning signs for Tower Resources (2 are potentially serious!) that we believe deserve your full attention.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this freelist 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 [email protected]. 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.