Insider buying is often regarded as a bullish indicator, as few people should 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. After all, you would be unlikely to sell your shares if you felt they were about to increase in value.
With that in mind, is news that the CEO of Pilbara Minerals Ltd (ASX: PLS) has been selling shares something to be concerned about?
CEO sells Pilbara Minerals shares
According to a change of director's interest notice, the lithium miner's CEO, Dale Henderson, sold 1.2 million Pilbara Minerals shares through a series of on-market trades between 30 August and 1 September.
Henderson sold shares in the range of $4.62 to $4.91 and received a total consideration of $5,761,000.
While this looks concerning at first glance, there is a very good reason for the sale.
That's because Henderson has also received Pilbara Minerals shares via its employee award plan and exercised performance rights. Although there was nil consideration for the shares the CEO received, it still triggers a tax liability.
It is for this reason that Henderson has sold shares. The company explains:
On-market sale of shares to fund Mr Henderson's tax obligations arising in relation to the exercise of options and performance rights allocated to Mr Henderson for the FY2021 LTI, pursuant to the Company's Employee Award Plan.
It is also worth noting that Henderson's holding has actually increased following these transactions. As a result, it is fair to say that the CEO's interests remain firmly aligned with shareholders.
