Insider buying can be a sign that those with the most insight into a company view its shares as undervalued. Here we take a look at an ASX share with multiple director buys over the past couple of weeks.
What is insider buying?
Insider buying is the purchase of shares in a company by an officer or executive of that company, such as a director. Insiders usually have exclusive insights into the companies they manage and are likely to purchase shares when they view them as undervalued.
Insiders must only buy based on publicly available information and must inform the ASX of the trade by lodging an Appendix 3Y. Depending on the circumstances, the purchase by an insider of shares can be seen as a vote of confidence in a business. Buys by multiple insiders can act as a stronger signal, as can larger, rather than smaller, share purchases.
Which ASX share had director buys?
We have studied insider buys for the past month (via Sharp Investor) to bring you an ASX share with multiple insider buys during the month: MFF Capital Investments Ltd (ASX: MFF).
Two MFF Capital directors acquired an aggregate of 70,000 shares in the company in late January and early February.
MFF Capital is a listed investment company that holds international and Australian stocks. MFF aims for a portfolio focussed on companies with attractive business characteristics at discounts to their intrinsic values. The MFF Capital share price is up nearly 40% since the start of 2019.
As at 31 January, MFF Capital’s net tangible assets (NTA) per share was $3.802 pre-tax (up from $3.225 as at 30 June) and $3.158 after providing for tax. Ex-dividend NTA figures were $3.602 pre-tax and $2.958 after providing for tax. A dividend of 2.5 cents per share was declared on 30 January, fully franked.
MFF Capital remarked at the end of January that it was less confident with opportunities for new investment than it has been in recent years. The equity rally deepened in 2019, dragging many otherwise conservative investors out of cash and into riskier assets.
This pushed prices up, increasing market risks and reducing the pool of future buyers. MFF Capital held a portfolio dominated by US shares at the end of January, with holdings in Visa (17%), MasterCard (16.9%), Home Depot (10.3%), Bank of America (8.2%), JP Morgan Chase (6.1%), and Alphabet (5.3%).
While a single director buy may not be telling, several can provide a good indication that those best placed to know consider shares good value.
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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020