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 before you buy or sell Spectral Medical Inc. (TSE:EDT), 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, such insiders must disclose their trading activities, and not trade on inside information.

We don’t think shareholders should simply follow insider transactions. But logic dictates you should pay some attention to whether insiders are buying or selling shares. For example, a Harvard University study found that ‘insider purchases earn abnormal returns of more than 6% per year.’

See our latest analysis for Spectral Medical

The Last 12 Months Of Insider Transactions At Spectral Medical

Over the last year, we can see that the biggest insider purchase was by Independent Director Kevin Giese for CA$120k worth of shares, at about CA$0.30 per share. That means that an insider was happy to buy shares at above the current price. 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. That purchase may suggest an expectation of positive returns over the long term.

Happily, we note that in the last year insiders paid CA$194k for 624.11k shares. But insiders sold 30.00k shares worth CA$13k. In total, Spectral Medical insiders bought more than they sold over the last year. Their average price was about CA$0.31. This is nice to see since it implies that insiders might see value around current prices (around CA$0.26). You can see a visual depiction of insider transactions over the last 12 months, below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!

I will like Spectral Medical better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Insider Ownership of Spectral Medical

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. Spectral Medical insiders own 2.9% of the company, currently worth about CA$1.4m based on the recent share price. This kind of significant ownership by insiders does generally increase the chance that the company is run in the interest of all shareholders.

What Might The Insider Transactions At Spectral Medical Tell Us?

The fact that there have been no Spectral Medical insider transactions recently certainly doesn’t bother us. However, our analysis of transactions over the last year is heartening. The transactions are fine but it’d be more encouraging if Spectral Medical insiders bought more shares in the company. Along with insider transactions, I recommend checking if Spectral Medical is growing revenue. This free chart of historic revenue and earnings should make that easy.

Of course Spectral Medical may not be the best stock to buy. So you may wish to see this free collection of high quality companies.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.