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Directors of publicly traded companies have to report when they buy or sell shares in the company in question. This gives me a huge treasure trove of information that I can refer to.
Of course, I don't know for sure why a director might make a purchase, but it may indicate to me that they feel the stock price is cheap or that they believe in the long-term future. Here are a couple of recent transactions in FTSE 250 Index Actions that caught my attention.
Buying on the dip
On Mondays, Wizz Air (LSE:WIZZ) confirmed that chief executive Jozsef Varadi had bought 10,000 shares in the airline. The total cost of the purchase was £140,900.
This is a really interesting time to buy, as the stock price has fallen 35% in the last month alone. Over the last year, it is down 41%. The company has struggled in recent months due to engine-related groundings. At the last update in early August, it had 46 aircraft grounded due to engine-related inspections by GTF.
This is detrimental to the company as it ultimately needs its planes to operate at full capacity to maximise customer flights and revenue.
However, I don't see this as a long-term problem. I think the CEO's stock buying this week reflects the same thinking, in that he thinks the stock's decline is an overreaction.
Due to the round number of shares acquired, this could also be linked to your remuneration. By receiving part of your salary through shares, it helps align your interests with those of other shareholders.
A veteran in the firm
Another case on Monday was related to Games workshop (LSE:GAW). Director Kevin Rountree bought 3,654 shares at a price of 10,041 pence. The total amount was £366,898.15.
Rountree is the CEO of Games Workshop and joined the company in 1998. He already owns shares in the company, so this is an addition to his holdings. Given that the stock is up 111% over the past five years, his historical investments are likely to be very profitable.
However, the stock has fallen 11% over the past year, even with good financial results. I think this is partly due 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 is not a cheap stock.
However, I think if we fast forward another five years, the CEO's buy-in will likely translate into benefits. It also makes sense to have a CEO who has a vested interest in the company performing at its best, given his or her role in the game.
My actions
Both stocks are on my watch list, with Wizz Air as a value pick and Games Workshop as a long-term buy-and-hold. CEO buys give me more confidence when thinking about whether to buy or not. When I have some more free cash, I am thinking about investing.
