Directors of listed companies have to report when they buy or sell shares in the specific firm. This gives me a treasure chest of information to be able to look at.
Of course, I don’t know for sure why a director might make a purchase, but it can indicate to me they feel the share price is cheap, or they believe in the long-term future. Here are a couple of recent trades on FTSE 250 stocks that caught my eye.
Buying the dip
On Monday, Wizz Air (LSE:WIZZ) confirmed that CEO Jozsef Varadi had bought 10,000 shares in the airline. The total purchase cost was £140,900.
This is a really interesting time to buy as the share price has fallen by 35% over just the past month. Over the past year it’s down 41%. The business has struggled in recent months due to engine-related groundings. In the latest update from the start of August, it had 46 aircraft on the ground due to GTF engine-related inspections.
This is damaging for the company, as ultimately it needs aircrafts functioning at full capacity to maximise customer flights and revenue.
However, I don’t see this as a long-term issue. I think that the CEO share purchase this week reflects the same thinking, in that he believes the stock move lower is an overreaction.
Due to the round number of shares purchased, this could also be linked to his compensation. In receiving part of his pay via the stock, it helps to align his interests with that of other shareholders.
A veteran at the firm
Another case from Monday was related to Games Workshop (LSE:GAW). Director Kevin Rountree bought 3,654 shares at a price of 10,041p. This totalled £366,898.15.
Rountree is the CEO of Games Workshop and first joined the company back in 1998. He already owns shares in the firm, so this is a top-up of his holdings. Given that the stock’s up 111% over the last five years, his historical investments are likely very profitable.
The stock is down 11% over the last year though, even with strong financial results. I think this is partly down to the fact that investors have a high benchmark for Games Workshop, given how much it has grown in the past. With a price-to-earnings ratio of 21.80, it’s not a cheap stock.
However, I think that if we fast forward another five years, the purchase from the CEO will likely be in profit. It also makes sense to have a CEO that has a vested interest in making the company perform, given his skin in the game.
My actions
Both stocks are on my watchlist, with Wizz Air as a value play and Games Workshop as a long-term buy-and-hold. The CEO purchases do give me more confidence when thinking about whether to buy or not. When I have some more free cash, I’m thinking about jumping in.
