When directors of a public FTSE company buy or sell stock, it has to be reported. This makes sense, as large purchases or disposals can prompt investors to revise their outlook for a business. As a result, keeping an eye on notable activity can be very important. Here are a couple of purchases over recent weeks that have caught my eye.
Buying a dip
The first comes from Paypoint‘s (LSE:PAY) CEO Nick Wiles. Last Friday (21 November), it was confirmed he bought 25,000 shares in the FTSE 250 stock for a total value of £134.5k.
What makes this purchase interesting is that it was made at 538p. This comes just a few days after the company experienced a sharp share price slump. For reference, the stock’s down 34% over the last month, pushing the share price down 42% over a broader one-year time horizon.
The main reason for this was disappointing half-year results, where it posted an underwhelming underlying EBITDA figure of £37.3m. As a result, it pushed back the target of getting this profitability metric to £100m. For reference, it had previously hoped to get there this year.
Delaying promised profits is never a good sign, which is why the share price tumbled. But the stock buy from the CEO just after this actually gives me some confidence. I think it shows Wiles feels the stock is cheap.
Further, his purchase as the CEO could help to steady the stock. The CEO sees it as a good time to buy, so maybe investors will be tempted to do the same. After all, with the recent move, the price-to-earnings ratio sits at just 6.79, well below the benchmark figure of 10 that I use to assign a fair value. This could mean the stock’s now undervalued and worth considering.
Investing for the future
Another interesting stock buy is from fellow FTSE 250 company B&M European Value Retail (LSE:BME). Like Paypoint, the company’s been struggling recently, with the stock down 50% over the last year.
Despite this, new CEO Tjeerd Jegen bought 31,850 shares for £49,447 last Thursday (20 November). He took the role in June as part of a leadership reshuffle designed to spark a growth turnaround. Last month, the business posted a new strategy called ‘Back to B&M Basics’.
It identified inventory and supply chain inefficiencies, problems with in-store operations and poor cost control. In terms of remedies, it’s aiming to simplify product ranges and continue selective store expansions in a more targeted way. The change in leadership, with Jegen at the top, should also bring fresh thinking.
I think the purchase of stock is a good way to align the CEO with shareholder interests. He is increasingly his stake in the company, meaning he’s financially tied to the success going forward. I think this is a good sign and could help push initiatives that will directly boost the share price in the future.
However, given the size of the problems the company is contending with, I’m going to wait until there are some signs of the October strategy having an impact before thinking about buying.
