Why insiders are buying this ASX 200 dividend share

Let's take a look at an S&P/ASX 200 Index (INDEXASX: XJO) share with multiple director buys over the past week.

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Director buys can be a sign that those with the most insight into a company view its shares as undervalued. In this article, we'll take a look at an S&P/ASX 200 Index (INDEXASX: XJO) dividend share with multiple director buys over the past week.

What is insider buying?

Insider buying is the purchase of shares in a company by an officer or executive of that company, such as a director. Insiders usually have exclusive insights into the companies they manage and are likely to purchase shares when they view them as undervalued.

Insiders 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 an insider of shares can be seen as a vote of confidence in a business. Buys by multiple insiders can act as a stronger signal, as can larger, rather than smaller, share purchases.

So, which ASX share had recent director buys?

We've studied insider buys for February to bring you an ASX 200 dividend share with multiple insider buys this month:

Service Stream Limited (ASX: SSM)

Three Service Stream directors acquired an aggregate of 209,612 shares in the company over the last week.

Service Stream operates in the telecommunications and utilities sectors providing end-to-end asset lifecycle services. The company provides network engineering, design & construction, maintenance, and operations services across fixed communications, network construction, energy, and water sectors.

The Service Stream share price is currently trading at $2.39 at the time of writing. Shares in Service Stream recently fell by nearly 10% from $2.75 to $2.50 on 6 February following the release of the company's half-year results. Shares continued to fall over subsequent days reaching a low of $2.27 on Wednesday this week before picking up. The directors bought shares on 10 and 11 February, taking advantage of the dip.

Recent results

In the company's half-year results, Service Stream reported a 43% increase in revenue to $497.8 million compared to $348 million in the prior corresponding period (pcp).

Earnings before interest, tax, depreciation and amortisation (EBITDA) of $58.1 million was reported from operations, up 50% from 1H19 and 6% from 2H19.

Adjusted net profit after tax (NPAT) increased 28% on the pcp to reach $32.3 million, while adjusted earnings per share increased 14% to 7.96 cents per share. Additionally, an interim dividend of 4 cents per share was declared (fully franked), up 14% on 1H19.

Outlook

Service Stream reports that it continues to experience strong demand for NBN activation services. Subsidiary Comdain Infrastructure secured two new long-term contracts with Sydney Water (via a joint venture) and Queensland Urban Utilities.

Service Stream reported a strong pipeline of business development opportunities across telecommunication and utilities industries, and the company is also assessing merger and acquisition opportunities.

Foolish takeaway

While a single director buy may not be telling, several can provide a good indication that those best placed to know consider shares good value.

Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Service Stream Limited. 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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