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.
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 with that being said, let’s take a look at an ASX healthcare share with multiple recent director buys:
Polynovo Ltd (ASX: PNV)
PolyNovo is a medical device company that manufactures an implantable dressing, Novosorb BTM, which can be integrated into the body as it heals.
Two PolyNovo directors acquired an aggregate of 650,000 shares in the company over the past week. The PolyNovo share price has fallen from highs of over $3 in February to be currently trading at $2.40 at the time of writing. Last week in particular, PolyNovo shares fell 25.9% to finish the week at $2.29 as half-year results fell short of market expectations.
The medical device company reported strong increases in sales and revenue, however, these weren’t sufficient to satiate the market which had high expectations following the more than 300% rise in the share price over the past year.
PolyNovo reported a 129% increase in sales of NovoSorb BTM for the half-year as compared to the prior corresponding period (pcp). The company said the rate of increase in sales is growing in existing markets and should grow further as new markets come to stream. Sales are expected to be lumpy as each market develops, however, based on sales to date, PolyNovo expects FY20 NovoSorb BTM sales to comfortably double those of FY19.
Total revenue of $10.18 million was reported in the half including commercial sales of NovoSorb BTM of $8.57 million. Research and development and new capital expenditure increased 92% to $3.22 million, while employee expenditure increased 86% to $6.79 million. A net loss for the period of $2.42 million was reported, an increase of 26% from a $1.92 million loss in the pcp. As at 31 December 2019, PolyNovo held $8.14 million in cash and short term investments.
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.
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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.