It’s often said that in the share market directors and managers may sell shares in their own companies for many reasons, but only buy because they expect the shares to go higher over time. After all no one should have a better idea as to how a company is performing than its own board of directors and senior management teams.
Recently three beaten-down companies have seen multiple directors or senior employees buying up shares in a move that suggests they think the businesses are undervalued.
After all no one likes losing money and even if you as accumulate a lot of wealth your outgoings rise with your income, and it’s unlikely experienced directors would buy shares in their companies if they expected sustained share price falls ahead.
So let’s take a look at the three companies below and their director or employee dealings.
Blackmores Limited (ASX: BKL) is the vitamins and health supplements retailer that is growing sales strongly into China and other South East Asian countries. Its Australian business is also ticking along nicely after a weak first quarter to FY 2017 versus very strong prior and comparable quarters.
The stock went ex-dividend today and sells for $102.66 which is below the $104.50 price its chief executive paid on February 23 for 1,000 shares in the business worth $104,500. The group also advised that its Managing Director for Asia and Company Secretary bought shares on the same day.
On March 3 another Blackmores director bought 487 shares at $102.64 worth $49,985 in another sign that its management team may believe its Q3 2017 sales are performing nicely. Let’s face it the professional analysts covering Blackmores have been way wide of the mark recently with their sales estimates and price targets, so investors may be better off taking management buying as a lead indicator of strong sales results ahead.
GBST Holdings Limited (ASX: GBT) is a junior fintech business that has seen its shares fall 25% in 2017 after the company issued a profit downgrade blamed on a Brexit related sales slowdowns within its UK operations.
However, these Brexit problems may prove a short-term and the big share price falls have been used by directors to snap up large amounts of shares. Between February 22-27 GBST’s chief executive, Rob DeDominicis, took the opportunity to buy 74,485 shares for a cash value around $225,000. Another director also bought 60,000 shares at around $3 each on February 16 and 17.
That’s nearly $400,000 worth of shares recently bought by company insiders at prices above today’s share price of $2.85. Given this kind of director buying, I would be surprised if the GBST share price finishes 2017 below $3.
Vocus Group Ltd (ASX: VOC) is another beaten-down tech business that has seen its shares fall 40% over the last six months as investors worry over its Nextgen acquisition, the NBN, and its ability to meet earnings guidance of $430 million to $450 million for FY 2017.
It seems its directors reckon the shares offer good value though with director buying occurring on December 7 and 9 2016 at prices around $4.05. Director Craig Farrow, among others, bought 20,000 shares for a consideration around $80,000 on December 7. The stock is since up around 10% in three months since, which goes to show how director share buying commonly precedes share price rises as companies report improving financials and outlooks.
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Motley Fool contributor Tom Richardson owns shares of Blackmores Limited and Vocus Communications Limited.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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