Insiders are buying Allkem shares. Should you?

Is insider buying a good sign for this lithium miner?

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Just like regular investors, insiders at listed companies have investment portfolios that they want to grow in value.

But unlike regular investors, the choices they make when investing are often regarded as buy and sell signals to the market.

For example, if a director buys their company's shares, it is seen as a bullish move. After all, who knows a company better than its board of directors? If they have confidence to invest, it may mean they believe the future is positive and its shares are good value.

Conversely, when a director sells shares, it is often seen as a bearish move. Who would sell their shares if they believed they were about to rise in value? Nobody, unless there was a good reason for it.

In addition, a lack of buying from directors can also be a cause for alarm. Especially when a company's shares have fallen heavily. This can be interpreted as a sign that they don't have confidence in the company's outlook or that its shares are still not actually cheap despite the fall.

Well, one company that has fallen heavily is Allkem Ltd (ASX: AKE). Due to weak lithium prices, the miner's shares have dropped 36% over the last 12 months. Have insiders been taking advantage of this decline?

Are insiders buying Allkem shares?

They certainly are!

Two non-executive directors, including its chair, have made sizeable purchases over the last seven days.

The company's non-executive chair, Peter Coleman, boosted his holding with the purchase of 11,492 Allkem shares through on-market trades on 15 November and 17 November.

Coleman paid a total of $99,670.35, which works out to be an average price of $8.67302 per share.

On 16 November, it was the turn of non-executive director Fernando Oris de Roa to load up. He picked up 16,000 Allkem shares for a total consideration of $145,767.57 or $9.110473 per share.

One broker that would approve of these purchases is Goldman Sachs. Despite being bearish on lithium prices, it has a buy rating and a $10.90 price target on the company's shares. This implies a potential upside of almost 19% from current levels.

Motley Fool contributor James Mickleboro has positions in Allkem. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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