FTSE directors have far more information on their businesses than the rest of us do. So their purchases and sales of company stock are worth keeping an eye on.
Earlier this week, I spotted a substantial director purchase at FTSE 100 retailer JD Sports Fashion (LSE: JD.). Here’s a look at the trade, and my take on it.
A £241k director buy
Regulatory filings show that on 11 January, JD’s chairman Andrew Higginson snapped up 159,704 shares at a price of 151p per share. This trade was worth around £241,153.
This director dealing activity got my attention for several reasons. Firstly, Higginson is a top-level insider. This is important. Research on insider activity shows that top-tier insiders (who are generally the most knowledgeable in relation to their businesses) tend to be better predictors of future stock performance than insiders that are lower down the corporate hierarchy.
Secondly, the chairman has spent a substantial amount of his own money on company stock. He’s also increased the size of his holding significantly. Before this trade, he owned 298,942 shares. Now he owns 458,646 shares – 53% more. This suggests to me he’s very confident the stock is undervalued at present.
Third, Higginson has a lot of experience in the retail sector. Before joining JD last year, he was chair of WM Morrison Supermarkets for around six years. Before this, he spent nearly 15 years at Tesco in senior leadership roles. So he’s likely to have a good read on the retail industry.
Overall, I think this trade looks very interesting. And it has me wondering whether I should buy the FTSE stock as well.
Should I buy the shares too?
Now his is a stock I’ve owned in the past (and done well from). And I’ve been thinking about buying it again as I like the long-term growth story. Late in December, I said that the stock – which tanked last year – was looking attractive.
However since then, it has experienced a sharp rise. Since I covered it in December, it has jumped about 30%.
There is justification for this surge in the share price. For a start, the stock was just way too cheap at the end of last year.
Secondly, the company just released a great trading update in which it said sales for the six weeks to the end of 2022 were up 20% year on year.
However, I’m hesitant to buy the stock after such a sharp rise. But it’s worth noting that the shares do still look relatively cheap. Currently, the forward-looking price-to-earnings (P/E) ratio here is only about 12. Yet after such a big run, there’s a decent chance they could experience a pullback, in my view.
So I’m going to leave JD on my watchlist for now. I’m still very interested in adding it to my portfolio, especially after this big director purchase. I just think I may be able to pick it up at a slightly lower price in the months ahead.
