The Harvey Norman Holdings Limited (ASX: HVN) share price is down 0.5% to $3.85 amid news its founder has just dropped $8 million in an epic 'buy-the-dip' exercise.
A change of director's interest notice lodged with the ASX reveals Gerry Harvey bought 270,000 Harvey Norman shares last Thursday. He bought a further 1,865,000 shares on Friday.
When company insiders spend big money on their shares, that implies a lot of confidence in the stock.
Does this mean you should buy, too? Let's hash this out together.
What was the Harvey Norman share price when Gerry bought?
Firstly, let's look at the price Harvey paid, which indicates where he sees good value.
The 270,000 Harvey Norman shares purchased on Thursday were bought at an average price of $3.71. Point of interest: Harvey has already made a capital gain of $37,800 on this parcel of shares.
The shares purchased on Friday were nabbed at an average price of $3.7478. So the capital gain there is already $190,603. Smart move, Gerald!
The total consideration paid for both lots of shares is $7,993,785.17. Both purchases were indirect interest buys through various trusts.
Why did the retail legend buy?
Well, the timing is relevant here.
The purchases took place a few days after the company reported its 1H FY23 results.
The retailer revealed a 15.1% decline in reported net profit after tax (NPAT) to $365.9 million. It also slashed its interim dividend by 35% to 13 cents per share fully franked.
Investors didn't react well. As we reported, the Harvey Norman share price was smashed by 12% at its intraday low.
Harvey criticised the market response, calling it a "total overreaction". But then he did what all smart long-term investors should do — he took advantage of it and bought the dip.
Harvey said last week:
Harvey Norman is on a 6 per cent dividend yield, or better, at $4 a share and we only paid out half (our earnings) in dividend; if we paid out the lot it would be a 12 per cent dividend fully franked. We have a wonderful record of paying dividends over 35 years.
We've got a long record that's very, very good and so the market … should be delighted, not disappointed.
Another director follows the same path
Harvey Norman's chief financial officer Chris Mentis also got in on the action last week.
According to a separate notice lodged with the ASX, Mentis purchased 40,000 shares on market for $147,164 on Thursday. The purchase was an indirect interest buy through his super fund.
Mentis also serves as an executive director and the company secretary.
Should you buy Harvey Norman at today's share price?
So, the Harvey Norman share price is still in 'buy the dip' territory. At $3.85, it is still down significantly — about 8% — since the 1H FY23 results were released last Tuesday.
We know from Harvey's purchases that he sees value in his ASX retail share at the $3.70-ish mark.
But what do the brokers think?
According to my Fool colleague James, Goldman Sachs has retained its buy rating on Harvey Norman shares. It has trimmed its 12-month price target to $4.70.
Based on where the Harvey Norman share price is trading at the time of writing, that implies a very healthy potential 22% upside for investors who buy today.
Although Goldman was disappointed with the 1H FY23 results, it believes the half represented the peak cash drag on franchisee support. It also sees a lot of value in the company's property holdings.
Excluding those property assets, Goldman notes that Harvey Norman shares are trading at a price-to-earnings (P/E) ratio of 6 times FY24 estimated earnings.
Generally speaking, the market considers any established stock on a P/E lower than 15 times as cheap.
So, the Harvey Norman share price could be considered a value buy at this time.
