We've lost count of how many times insiders have accumulated shares in a company that goes on to improve markedly. 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 Challenger Exploration Limited (ASX:CEL), you may well want to know whether insiders have been buying or selling.

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 it is perfectly logical to keep tabs on what insiders are doing. 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'.

View our latest analysis for Challenger Exploration

Challenger Exploration Insider Transactions Over The Last Year

Notably, that recent purchase by Fletcher Quinn is the biggest insider purchase of Challenger Exploration shares that we've seen in the last year. That means that even when the share price was higher than AU$0.094 (the recent price), an insider wanted to purchase shares. It's very possible they regret the purchase, but it's more likely they are bullish about the company. To us, it's very important to consider the price insiders pay for shares is very important. As a general rule, we feel more positive about a stock if insiders have bought shares at above current prices, because that suggests they viewed the stock as good value, even at a higher price.

In the last twelve months Challenger Exploration insiders were buying shares, but not selling. 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!

 ASX:CEL Recent Insider Trading April 22nd 2020

Challenger Exploration 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.

Challenger Exploration Insiders Bought Stock Recently

It's good to see that Challenger Exploration insiders have made notable investments in the company's shares. In total, insiders bought AU$1.3m worth of shares in that time, and we didn't record any sales whatsoever. This is a positive in our book as it implies some confidence.

Does Challenger Exploration Boast High Insider Ownership?

Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. 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 Challenger Exploration insiders own 22% of the company, worth about AU$11m. While this is a strong but not outstanding level of insider ownership, it's enough to indicate some alignment between management and smaller shareholders.

So What Does This Data Suggest About Challenger Exploration 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. But on the other hand, the company made a loss during the last year, which makes us a little cautious. When combined with notable insider ownership, these factors suggest Challenger Exploration insiders are well aligned, and that they may think the share price is too low. 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. Our analysis shows 6 warning signs for Challenger Exploration (2 can't be ignored!) and we strongly recommend you look at them before investing.

Of course Challenger Exploration may not be the best stock to buy. So you may wish to see this freecollection of high quality 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.