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This ASX share has had multiple director buys. Is it a buying opportunity?

Director buys can be a sign that those with the most insight into a company view its shares as undervalued. This ASX share, which is yielding more than 6%, has had a number of director buys over the past month. Should you be following suit?

What is ‘director buying’?

Directors often have exclusive insights into the companies they manage and are likely to purchase shares when they view them as undervalued.

Directors must only buy based on publicly available information and must inform the ASX of the trade by lodging an Appendix 3Y. Depending on the circumstances, the purchase by a director of shares can be seen as a vote of confidence in a business. Buys by multiple directors can act as a stronger signal, as can larger, rather than smaller, share purchases.

Who was buying what on the ASX?

We have studied director buys for the past month to bring you this ASX share with multiple insider buys during the month.

Decmil Group Limited (ASX: DCG)

Decmil offers design, civil engineering and construction services, accommodation services, mechanical fabrication and maintenance to the Australian resources and infrastructure industries.

Two Decmil directors acquired an aggregate of 172,500 shares in the company in late December following a dramatic fall in the company’s share price. Shares in Decmil fell more than 50% between 11 December and 24 December, plummeting from 90 cents to 42 cents. Decmil shares are currently trading at 48 cents.

On 12 December, Decmil announced it expected a negative impact on its cash position of approximately $14 million, after Sunraysia Solar Farm had refused to award Decmil an extension of time and associated adjustment to relevant dates under the EPC contract for the construction of the Sunraysia Solar farm project.

Decmil believes it is entitled to an adjustment to these dates and has escalated the issue under the dispute mechanism of the contract. Decmil has confirmed it does not believe the issue will have a material impact on its earnings for the half year ended 31 December 2019, and that it retains sufficient cash reserves and working capital facilities.

Foolish takeaway

While a single insider buy may not be telling, several can provide a good indication that those best placed to know consider the shares good value. Perhaps Decmil’s directors believe the recent fall in the company’s share price will be short lived.

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. 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 Scott Phillips.

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Kate O'Brien