MENU Ltd (ASX:KGN) shares plunge lower on insider share sales

Source: Kogan presentation

It has been a disappointing start to the day for the Ltd (ASX: KGN) share price.

In early trade the ecommerce company’s shares are down a sizeable 7.5% to $6.50. At one stage Kogan’s shares were as much as 10% lower at $6.33.

Why are its shares plunging lower?

This morning Kogan conformed media reports that founder Ruslan Kogan and chief financial officer David Shafer have sold another block of shares.

According to the release, a total of 6.25 million shares were sold for a consideration of approximately $40 million, which values them at around $6.40 each.

This sale completes the current intention to trade by the founding directors, with both committing to not selling any further shares before the release of its half year results next year.

Kogan’s chairman, Greg Ridder, advised that there was substantial interest from new and existing shareowners, which he feels is a further step in the maturity of the company.

He stated that: “It is great to see our work at continue to attract significant interest from both domestic and international shareholders who value our business strategy and execution. All shareholders will have the benefit of added depth and liquidity afforded by this transaction while maintaining our founders, Ruslan Kogan and David Shafer, interests in the Company at proportions amongst the highest on the ASX.”

Should you buy the dip?

While I prefer to see directors buying shares than selling them, I feel Kogan is a very different situation and its directors already have a significant amount of wealth tied up in the company’s shares. Thus it is reasonable for them to want to offload shares now and then.

I think Kogan’s shares are in the buy zone and this pullback has created a buying opportunity. Though, one thing that is worth noting is that management elected to not provide any guidance with its results in August. Instead, it will provide a trading update in November at its AGM.

Investors with a lower tolerance for risk might want to wait for that update before investing. In the meantime, fellow retailers Accent Group Ltd (ASX: AX1) and Super Retail Group Ltd (ASX: SUL) may be more suitable options.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended ltd. 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 Scott Phillips.

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