Executive On-market Buying
Directors procuring shares on market is a good sign because it often means they believe their company is undervalued. Knowing this, some less scrupulous chiefs accumulate stock to manipulate its price. I consider the following when fathoming the true intentions of these actors:
- Are they parting with a wad of dough or a few crumbs?
- Is the company short of funds? Do the acquisitors own a slab of the business and are they at risk of dilution?
- Are they big holders and scheming to sell it all in the near future (the dummy move)?
Now, let's say I am minded to accept the purity of the intentions behind such a performance. It may still augur doom as the officers could be rubbish investors. Yes, they are certainly more knowledgeable and have more experience of their company than I do, but that in itself may mean they lack perspective of what other potentially preferable uses of capital exist.
To circumnavigate this problem it is vital to assess the merits of the investment assuming no such purchase took place. If the stock is attractive in this light then director purchases indeed enhance its prospects, in my view.