Over $100 million of GYG shares sold by insiders on day one. Should investors be worried?

Is it a bad sign that insiders sold a lot of their GYG shares on day one?

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Guzman Y Gomez Ltd (ASX: GYG) shares jumped 30% on the first trading day last week. However, it may have flown under the radar that key investors and leadership figures decided to offload some of their shares amid the buying frenzy.

The GYG initial public offering (IPO) was very successful for the company, with the share price trading at $30 on day one, compared to the IPO price of $22.

The market appears to be excited by the company's prospects of growing its restaurant count in Australia and overseas through a mixture of corporate and franchise locations.

While the company may have a bright future, let's look at the insider sales that occurred last week.

Taking profits

As noted by The Australian, a number of insiders decided to sell GYG shares during the IPO process.

GYG Chair Guy Russo, the former leader of McDonald's Australia and Wesfarmers Ltd's (ASX: WES) Kmart, sold well over $10 million of shares. However, he still owns over $160 million of GYG shares.

TDM Growth, one of the major backers of GYG, decided to sell 4.4 million GYG shares in the company, worth around $100 million. It now has 28.6 million shares, worth more than $820 million.

Guzman Y Gomez director Bruce Buchanan, who has been on the board for a long time, sold 125,000 shares and retains $8.4 million worth of GYG shares.

Co-CEO Hilton Brett reduced his stake by 47,000 shares to finish with a holding worth over $9 million.

Is this a worry?

Normally, we like to see management and institutional investors buying shares rather than selling shares.

The decision to sell may make sense – the IPO happened because GYG thought the sale price was a good valuation to list at. For the company to trade on the ASX, existing shareholders needed to reduce their ownership of the business one way or another so that other investors could buy in.

It's important to note that each of the shareholders I mentioned above still owns a significant majority of their original holding, so they're still heavily invested in the future of Guzman Y Gomez.

Steven Marks, the founder and co-CEO of the business, retained 8.8 million shares after the IPO process. Hence, he's still heavily involved in the Mexican food business with a position worth over $250 million.

While the business may be expensive compared to some other ASX companies, it has major global growth plans for the years ahead.

I think the ASX share is worth watching, and I'm considering what price I'd be willing to pay to buy GYG shares.

GYG share price snapshot

Since that first trading day, when the GYG share price hit $30 last week, it has fallen 4% to $28.80.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. 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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