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Arguably, there’s no more bullish sign for a stock than the company’s CEO buying it with his or her own money. And that’s exactly what’s been happening with a couple of UK shares recently.
When directors start buying their own stocks, it usually means they think it’s heading higher. And these are the people who should be in the best position to judge.
Vistry
One recent example of insider buying that stands out is at Vistry (LSE:VTY). Earlier this week, CEO Greg Fitzgerald bought 84,068 shares at 5.9p each.
That’s a total investment of £496,261 – which is real money by anyone’s standards. And the stock market has (not unreasonably) seen this as a positive sign for the FTSE 250 company.
Until recently, Vistry was under investigation from the Competition and Markets Authority. And a series of profit warnings at the end of last year put immediate pressure on the firm’s share price.
Given this, the CEO’s investment might be seen as a sign these issues are past. And while cost inflation remains an ongoing risk, the stock’s down 50% from where it was a year ago.
Vistry currently has plans to return £1bn to shareholders through dividends and share buybacks over the next few years. That’s around half of its current market value.
I don’t see that return on offer elsewhere right now, which is why I’ve been buying the stock for my own portfolio. And if nothing else, the CEO’s latest investment means I’m in good company.
Croda International
Another company where the CEO’s been buying shares is Croda International (LSE:CRDA). Like Vistry, the stock’s been falling and investors have been looking for signs of a turnaround.
Croda’s decline has been ongoing since the end of the pandemic. After a surge in demand during Covid-19, the firm’s been battling high inventory levels as things get back to normal.
The stock however, is now well below where it was before 2019. And a potential concern for investors is the fact the firm’s free cash flows don’t cover its current dividend.
The company ending its 34-year streak of consecutive dividend increases could cause Croda’s share price to crash. But CEO Steve Foots has bought 3,815 shares at £26.17 per share.
The biggest risks with the company are arguably the cyclicality of the end markets it sells into. And this isn’t something the CEO is in a position to do anything about directly.
Despite this, I see an investment of £99,831 as a positive sign in terms of the likelihood of a dividend cut. And this is something investors might well want to take note of if they’re considering it.
Opportunities?
Share prices falling as companies face short-term challenges can be great buying opportunities. But the risk is that things can always get worse before they start to get better.
With both Vistry and Croda, I think insider buying is a clear sign that management thinks the worst is now in the past. There is, of course, no guarantee they’re right about this.
Vistry’s shares are well below their intrinsic value if the firm can hit its objectives and Croda’s shares are below the price the CEO bought at. I think both are worth further research right now.
