One thing I always keep a close eye on when researching stocks is director deals. Corporate directors have far more information on their businesses than the rest of us, and research shows these ‘insiders’ tend to make well-timed stock purchases and sales.
Here, I’m going to highlight a FTSE 100 stock that has seen some significant buying from company insiders recently. I think it could be worth investing in on the back this activity.
Director buying
The stock is Sage (LSE: SGE). It’s a leading software business that provides cloud-based accounting and payroll solutions to small- and medium-sized businesses globally.
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Now recently, there has been a number of sizeable director purchases here.
The biggest has been by Chief Product Officer Walid Abu-Hadba. He purchased 40,000 shares back in January, investing around £300,000 in the company.
However, since then, he has continued to add to his position, buying 10,000 shares on both 13 February and 31 March at prices between £7.65 and £7.75 per share. In total, the CPO – who previously spent 20 years at Microsoft – has bought about £450,000 worth of Sage shares this year. That’s a large investment.
Another stock buyer has been CEO Steve Hare. In mid-February he snapped up 10,000 shares at a price of £7.56 per share, investing a total of around £75,600 in the company.
Other directors to buy shares recently include board member Roisin Donnelly, who bought 10,000 shares (at £7.83 each) on 8 February and board member Maggie Chan Jones, who purchased 10,000 shares (at £7.49 each) on 24 March.
Clearly, sentiment towards the stock within the company is quite bullish at the moment.
Time to buy?
Now, I would never buy a stock just because directors had been buying. However, looking at the fundamentals here, there’s a lot to like about the company.
Business performance is healthy for a start. In January, Sage said it had made a strong start to the year with total revenue for the three months to the end of December rising 10% year on year. Recurring revenue was up 12% year on year.
The group noted in the update that its solutions were helping businesses improve their productivity and resilience.
Secondly, there’s plenty of growth potential here. Research firms expect the market for cloud-based accounting solutions to grow 15-20% a year between now and 2030. This market growth should provide healthy tailwinds for Sage.
Finally, Sage is a profitable company with relatively predictable cash flows.
Putting this all together, I think the stock is worth investing in right now.
One downside here is that the shares aren’t cheap. Currently, the forward-looking price-to-earnings (P/E) ratio is about 26. This adds some risk to the investment case.
Insiders don’t seem too fussed about this valuation though. They seem to believe there’s value on offer at the current share price.
After all, insiders only buy stock for one reason. And that’s to make money.
