Liquidia Corporation (NASDAQ:LQDA) insiders who purchased shares in the last 12 months were richly rewarded last week. The stock climbed by 12% resulting in a US$107m addition to the company's market value. Put another way, the original US$6.00m acquisition is now worth US$8.63m.

While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, we would consider it foolish to ignore insider transactions altogether.

The Last 12 Months Of Insider Transactions At Liquidia

The Independent Director Paul Manning made the biggest insider purchase in the last 12 months. That single transaction was for US$3.0m worth of shares at a price of US$8.90 each. Even though the purchase was made at a significantly lower price than the recent price (US$11.42), we still think insider buying is a positive. Because it occurred at a lower valuation, it doesn't tell us much about whether insiders might find today's price attractive.

Happily, we note that in the last year insiders paid US$6.0m for 756.07k shares. But they sold 43.47k shares for US$563k. In the last twelve months there was more buying than selling by Liquidia insiders. Their average price was about US$7.94. To my mind it is good that insiders have invested their own money in the company. However, we do note that they were buying at significantly lower prices than today's share price. The chart below shows insider transactions (by companies and individuals) over the last year. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!

Liquidia is not the only stock insiders are buying. So take a peek at this free list of under-the-radar companies with insider buying.

Liquidia Insiders Bought Stock Recently

Over the last three months, we've seen significant insider buying at Liquidia. Independent Director Paul Manning spent US$3.0m on stock, and there wasn't any selling. This is a positive in our book as it implies some confidence.

Does Liquidia 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. It's great to see that Liquidia insiders own 11% of the company, worth about US$101m. This kind of significant ownership by insiders does generally increase the chance that the company is run in the interest of all shareholders.

So What Do The Liquidia Insider Transactions Indicate?

It's certainly positive to see the recent insider purchase. And an analysis of the transactions over the last year also gives us confidence. But we don't feel the same about the fact the company is making losses. When combined with notable insider ownership, these factors suggest Liquidia insiders are well aligned, and quite possibly think the share price is too low. One for the watchlist, at least! So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. In terms of investment risks, we've identified 1 warning sign with Liquidia and understanding it should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity 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.