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 China Art Financial Holdings Limited (HKG:1572).

Do Insider Transactions Matter?

It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, most countries require that the company discloses such transactions to the market.

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 Colombia 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’.

View our latest analysis for China Art Financial Holdings

The Last 12 Months Of Insider Transactions At China Art Financial Holdings

Over the last year, we can see that the biggest insider sale was by Chau Yung Lai for HK$7.3m worth of shares, at about HK$1.06 per share. That means that even when the share price was below the current price of HK$1.26, an insider wanted to cash in some shares. While their view may have changed since they sold, this isn’t a particularly bullish sign. When an insider sells below the current price, it does tend to make us wonder about the current valuation. Please note, however, that this single sale was just 3.5% of Chau Yung Lai’s stake. Chau Yung Lai was the only individual insider to sell over the last year.

Chau Yung Lai sold a total of 11.53m shares over the year at an average price of CN¥1.02. The chart below shows insider transactions over the last year. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Does China Art Financial Holdings Boast High Insider Ownership?

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. China Art Financial Holdings insiders own 5.0% of the company, currently worth about HK$101m 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 China Art Financial Holdings Tell Us?

There haven’t been any insider transactions in the last three months — that doesn’t mean much. It’s great to see high levels of insider ownership, but looking back at the last year, we don’t gain confidence from the China Art Financial Holdings insiders selling. Along with insider transactions, I recommend checking if China Art Financial Holdings is growing revenue. This free chart of historic revenue and earnings should make that easy.

But note: China Art Financial Holdings may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.

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.