Insiders who bought AU$458.0k worth of Terra Metals Limited's (ASX:TM1) stock at an average buy price of AU$0.042 over the last year may be disappointed by the recent 10.0% decrease in the stock. This is not good as insiders invest based on expectations that their money will appreciate over time. However, as a result of recent losses, their original investment is now worth only AU$295.5k.

While insider transactions are not the most important thing when it comes to long-term investing, we would consider it foolish to ignore insider transactions altogether.

Check out our latest analysis for Terra Metals

The Last 12 Months Of Insider Transactions At Terra Metals

The Independent Non-Executive Chairman Ian Middlemas made the biggest insider purchase in the last 12 months. That single transaction was for AU$116k worth of shares at a price of AU$0.035 each. That means that even when the share price was higher than AU$0.027 (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. To us, it's very important to consider the price insiders pay for shares. 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.

Terra Metals insiders may have bought shares in the last year, but they didn't sell any. The average buy price was around AU$0.042. I'd consider this a positive as it suggests insiders see value at around the current price. The chart below shows insider transactions (by companies and individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!

Terra Metals is not the only stock that insiders are buying. For those who like to find small cap companies at attractive valuations, this free list of growing companies with recent insider purchasing, could be just the ticket.

Does Terra Metals 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. Our data indicates that Terra Metals insiders own about AU$1.2m worth of shares (which is 11% of the company). We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. Whilst better than nothing, we're not overly impressed by these holdings.

What Might The Insider Transactions At Terra Metals Tell Us?

There haven't been any insider transactions in the last three months -- that doesn't mean much. On a brighter note, the transactions over the last year are encouraging. We'd like to see bigger individual holdings. However, we don't see anything to make us think Terra Metals insiders are doubting the company. 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. To assist with this, we've discovered 4 warning signs that you should run your eye over to get a better picture of Terra Metals.

But note: Terra Metals 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.

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 of direct interests only, but not derivative transactions or indirect interests.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.