Insiders are buying shares in this FTSE 250 stock! Should I buy some too?

Sumayya Mansoor takes a closer look at this FTSE 250 stock and delves deeper into the insiders that have been snapping up shares recently.

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I recently noticed that insiders at FTSE 250 firm Dowlais Group (LSE: DWL) had been buying shares.

I’m always intrigued when insiders start buying shares for their personal portfolios. What does it mean? Should I buy some shares too?

A recent arrival to the FTSE 250 index

Dowlais Group is a specialist engineering business with a focus on the automotive sector. Split into three companies — GKN Automotive, GKN Powder Metallurgy, and GKN Hydrogen — it aims to utilize technology to enhance the automotive space, especially electric vehicles.

It is worth noting that Dowlais is a spin-off from FTSE 100 incumbent Melrose Industries, which is an aerospace business.

What does it mean when insiders buy shares?

In simple terms, this is when individuals who work at the company in question, in this case Dowlais, buy shares for their personal portfolio.

There are a few ways of looking at this type of activity. Here’s how I look at it.

Who? I examine the role of the people who are actually purchasing the shares. This can be senior individuals such as CEOs, CFOs, and other board members.

Why? It’s important to understand the role of the person doing the buying. This is because the higher the individual in the hierarchy, the more they know and understand the business and its direction, as well as its potential for growth and success. After all, who knows how the business is doing better than those who run it. If they’re willing to spend their own cash to purchase shares, maybe I should review the business and follow suit.

Of course, I would always temper my approach by acknowledging that insider buying is no guarantee of success.

Should I buy Dowlais shares?

Let’s take a look at the recent purchase at Dowlais then. Between 20 and 22 June, a total of five directors purchased Dowlais stock. The CEO, CFO, and chairman were three of the five board members to purchase stock and the total amount spent on shares totalled £800,000.

So what’s happening with Dowlais shares right now? As I write, they’re trading for 119p, which is a 2% increase compared to this time last year when they were trading for 117p. At current levels, they’re trading on a price-to-earnings ratio of close to nine, which is below the market average.

In Dowlais’ most recent trading update, released 23 May, for the four months ending April 30, there were a few positive takeaways. It delivered £1.9bn of revenue, which is a 9% increase on the previous year. Some promising comments from CEO Liam Butterworth mentioned that tricky market conditions had not hampered the business. Overall, full-year expectations had not changed.

To summarise, Dowlais looks like an interesting prospect to me right now. The insider buying activity, coupled with the positive trading statement have piqued my interest. However, for now, I’ll put it on my FTSE 250 watch list and keep a close eye on developments. I’m particularly intrigued to see its interim report due in September.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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