The fact that multiple Energy Recovery, Inc. (NASDAQ:ERII) insiders offloaded a considerable amount of shares over the past year could have raised some eyebrows amongst investors. When analyzing insider transactions, it is usually more valuable to know whether insiders are buying versus knowing if they are selling, as the latter sends an ambiguous message. However, if numerous insiders are selling, shareholders should investigate more.

While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, logic dictates you should pay some attention to whether insiders are buying or selling shares.

View our latest analysis for Energy Recovery

Energy Recovery Insider Transactions Over The Last Year

The Independent Director, Arve Hanstveit, made the biggest insider sale in the last 12 months. That single transaction was for US$775k worth of shares at a price of US$15.49 each. That means that an insider was selling shares at slightly below the current price (US$16.31). When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. While insider selling is not a positive sign, we can't be sure if it does mean insiders think the shares are fully valued, so it's only a weak sign. We note that the biggest single sale was only 5.1% of Arve Hanstveit's holding.

All up, insiders sold more shares in Energy Recovery than they bought, over the last year. You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. 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 hidden gems this free list of small cap companies with recent insider purchasing, could be just the ticket.

Energy Recovery Insiders Are Selling The Stock

The last three months saw significant insider selling at Energy Recovery. In total, insiders dumped US$352k worth of shares in that time, and we didn't record any purchases whatsoever. Overall this makes us a bit cautious, but it's not the be all and end all.

Does Energy Recovery Boast High Insider Ownership?

Many investors like to check how much of a company is owned by insiders. We usually like to see fairly high levels of insider ownership. It appears that Energy Recovery insiders own 2.4% of the company, worth about US$22m. 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 Energy Recovery Insiders?

Insiders haven't bought Energy Recovery stock in the last three months, but there was some selling. Zooming out, the longer term picture doesn't give us much comfort. On the plus side, Energy Recovery makes money, and is growing profits. Insider ownership isn't particularly high, so this analysis makes us cautious about the company. We're in no rush to buy! 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. While conducting our analysis, we found that Energy Recovery has 2 warning signs and it would be unwise to ignore these.

But note: Energy Recovery 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.

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