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 shareholders might well want to know whether insiders have been buying or selling shares in Canstar Resources Inc. (CVE:ROX).

Do Insider Transactions Matter?

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, 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'.

View our latest analysis for Canstar Resources

Canstar Resources Insider Transactions Over The Last Year

In the last twelve months, the biggest single purchase by an insider was when insider Eric Sprott bought CA$3.9m worth of shares at a price of CA$0.38 per share. Although we like to see insider buying, we note that this large purchase was at significantly below the recent price of CA$0.47. Because the shares were purchased at a lower price, this particular buy doesn't tell us much about how insiders feel about the current share price.

In the last twelve months insiders purchased 23.91m shares for CA$6.3m. But they sold 125.00k shares for CA$31k. Overall, Canstar Resources insiders were net buyers during the last year. They paid about CA$0.26 on average. We don't deny that it is nice to see insiders buying stock in the company. However, you should keep in mind that they bought when the share price was meaningfully below today's levels. 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!

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

Insiders at Canstar Resources Have Bought Stock Recently

It's good to see that Canstar Resources insiders have made notable investments in the company's shares. Overall, nine insiders shelled out CA$6.1m for shares in the company — and none sold. This makes one think the business has some good points.

Does Canstar Resources Boast High Insider Ownership?

Many investors like to check how much of a company is owned by 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. It appears that Canstar Resources insiders own 33% of the company, worth about CA$14m. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.

So What Does This Data Suggest About Canstar Resources Insiders?

It's certainly positive to see the recent insider purchases. And an analysis of the transactions over the last year also gives us confidence. However, we note that the company didn't make a profit over the last twelve months, which makes us cautious. Insiders likely see value in Canstar Resources shares, given these transactions (along with notable insider ownership of the company). So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. When we did our research, we found 4 warning signs for Canstar Resources (2 don't sit too well with us!) that we believe deserve your full attention.

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.

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.

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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.