The Xero Limited (ASX: XRO) share price will be one to watch this morning after reports emerged claiming that the business and accounting software provider’s founder and non-executive director, Rod Drury, is looking to sell a large number of shares.
According to the AFR, Mr Drury is looking to offload 2 million shares via a bookbuild with a $58.00 per share floor price.
Based on the floor price, this works out to be a total consideration of $116 million and would be a discount of approximately 2.35% to the last close price of $59.40.
The report reveals that Credit Suisse was hired to oversee the block trade and was seeking buyers after the market close on Monday.
Should you be concerned?
I wouldn’t be overly concerned by this share sale as Mr Drury will still retain an 11.2% stake in the company if these shares find a buyer. I believe his interests are firmly aligned with shareholders.
However, as the AFR points out, there has been a large amount of insider selling recently, which appears to have some fund managers concerned.
In recent weeks heavy insider selling has been clocked at infant formula company Bubs Australia Ltd (ASX: BUB), international student placement services company IDP Education Ltd (ASX: IEL), lottery ticket seller Jumbo Interactive Ltd (ASX: JIN), infection control specialist Nanosonics Ltd (ASX: NAN), aerial imagery technology and location data company Nearmap Ltd (ASX: NEA), and global wine giant Treasury Wine Estates Ltd (ASX: TWE).
What does this mean?
Insider buying is often regarded as a bullish indicator as few people know a company better than its own directors.
The theory is that if they have the confidence to buy shares, it could be a sign that things are going well and they expect them to appreciate in value.
Conversely, when directors sell shares it is often regarded as a bearish indicator as you’d be unlikely to sell shares if you felt they were about to increase in value.
Is this a sign that the market is peaking? Only time will tell, but I’m optimistic that it is not.
Overall, I think now could be the time to buy these dirt cheap shares which have recently been rated as buys. I believe they still have plenty of upside ahead of them over the next few years.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Jumbo Interactive Limited, Nanosonics Limited, and Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of Xero. The Motley Fool Australia has recommended BUBS AUST FPO, Nanosonics Limited, and Nearmap 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.