It’s no secret that the Rolls-Royce (LSE: RR.) share price is flying right now. This year, it’s up about 90%.
I think it may be able to keep rising in the near term too. Because I just spotted a really bullish insider transaction here.
A large insider stock purchase
I always keep an eye on insider stock purchases and sales (‘director dealing’). Because company insiders tend to have far more information on their businesses than the rest of us.
If they’re buying a ton of company shares, it’s generally a bullish signal. After all, no one buys company stock if they expect it to fall.
Now, zooming in on Rolls-Royce, there was a substantial stock purchase from board member Paulo Cesar Silva recently. On 8 October, he bought 41,780 shares at a price of £11.62 per share (about 2% above the current share price).
This trade cost him around £485,400. That’s a relatively large trade and it suggests he’s quite confident the share price is going higher.
Loads of industry experience
Of course, insiders don’t always get it right. Like the rest of us, they can make ill-timed stock purchases.
But here’s the thing. Silva has significant experience in the aerospace industry.
Previously, he worked at Embraer – the third largest commercial jets manufacturer – for over 25 years where he was president & CEO of the commercial aviation division before becoming president and CEO of the group in 2016.
Given this background, he’s likely to have a very good understanding of Rolls-Royce’s core business (maybe performance here’s going to be better than expected?).
One other thing worth mentioning is that he has considerable finance experience having spent his early career in senior finance roles. Therefore, he most likely knows his way around a balance sheet and income statement.
Combine the size of the purchase with his industry experience and we have a rather ‘informative’ trade, if you ask me. This isn’t just a random board member buying a handful of shares.
Should I buy the shares?
Having said that, I’m not going to blindly follow Silva into Rolls-Royce shares. To my mind, the valuation’s a little on the high side right now.
Currently, the forward-looking price-to-earnings (P/E) ratio using next year’s earnings forecast (32.8p per share) is about 34. That’s a higher multiple than I’m prepared to pay for this company.
I could probably justify a P/E ratio in the mid-20s (almost twice the UK market average) given Rolls-Royce’s growth potential in areas like defence and nuclear energy. But given risks around supply chain issues and product setbacks, I can’t get to 34.
Lots of other opportunities today
So while the insider transaction here does look bullish, I’m going to focus on other opportunities in the market for now. The good news is that there are quite a few interesting opportunities out there at the moment.
