An insider at this FTSE 100 company just bought £700k worth of stock

This FTSE 100 healthcare stock just saw some notable insider buying. And Edward Sheldon sees this activity as a bullish signal.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 100 healthcare stock Smith & Nephew (LSE: SN.) hasn’t performed very well recently. Over the last 12 months, its share price has fallen about 9%.

What’s interesting, however, is that the chief financial officer (CFO) of the company, John Rogers, just spent a huge amount of money on shares. This suggests that he believes that the share price is about to rally.

I follow insider transactions

I always pay attention to insider transactions, especially buys. Insiders can sell stock for a number of reasons (e.g., buying a house, paying school fees, etc.). But they generally only buy stock for one reason – to make money. So, stock purchases can provide valuable investment insights.

Now, academic research shows that not all insider buys are created equal from a signaling perspective. The most ‘informative’ buys tend to be large ones from top-tier insiders (CEO, CFO, chair, etc.). These insiders tend to have the most information on their businesses. So, the fact that they are buying shares is generally a bullish signal (it can suggest that they think the market is underestimating their businesses).

A large purchase

The recent trade from Smith & Nephew’s CFO John Rogers certainly looks interesting to me. On 19 December, he bought a total of 71,920 shares for around £9.72 per share. That equates to roughly £700,000 worth of stock. That’s a large buy, and it suggests the insider is confident in the outlook. It could be a sign that performance is going to be better than expected. But we don’t know for sure.

The stock looks cheap

One thing we do know is that the stock looks cheap today. Currently, analysts expect earnings per share to come in at $1.05 next year (versus a forecast of 89 cents for 2024). So, at today’s share price, we are looking at a price-to-earnings (P/E) ratio of just 11.6.

That’s pretty low for an orthopaedics company with a decent long-term track record and plenty of long-term growth potential (as the global population continues to age, the number of hip and knee surgeries should increase). If the company – which has struggled to generate momentum recently – can show that it’s firing on all cylinders, the stock could get a major valuation rerating.

Short-term risks

Now, there are no guarantees that this stock will do well in the short term, of course. Recently, the company has been negatively impacted by the economy in China and this remains a risk.

Government initiatives in China could also be a challenge. Recently, its volume-based procurement (VBP) programme, which is designed to lower the cost of medical products, has hurt the company.

Taking a long-term view, however (as we like to do here at The Motley Fool), this stock does appear to have plenty of potential. I think it’s worth considering for an investment portfolio, especially after the recent £700k CFO buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has positions in Smith & Nephew Plc. The Motley Fool UK has recommended Smith & Nephew Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Value Shares

Investing Articles

2 FTSE 100 stocks I think could be takeover targets in 2025

If the UK stock market gets moving in 2025, I wonder if the FTSE 100 might offer a few tasty…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Could a 2025 penny share takeover boom herald big profits for investors?

When penny share owners get caught up in a takeover battle, what might happen? Christopher Ruane looks at some potential…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

3 value shares for investors to consider buying in 2025

Some value shares blew the roof off during 2024, so here are three promising candidates for investors to consider next…

Read more »

Investing Articles

Can this takeover news give Aviva shares the boost we’ve been waiting for?

Aviva shares barely move as news of the agreed takeover of Direct Line emerges. Shareholders might not see it as…

Read more »

Investing Articles

2 cheap FTSE 250 growth shares to consider in 2025!

These FTSE 250 shares have excellent long-term investment potential, says Royston Wild. Here's why he thinks they might also be…

Read more »

Investing Articles

2 FTSE shares I won’t touch with a bargepole in 2025

The FTSE 100 and the FTSE 250 have some quality stocks. But there are others that Stephen Wright thinks he…

Read more »

Investing Articles

Could this be the FTSE 100’s best bargain for 2025?

The FTSE 100 is full of cheap stocks but there’s one in particular that our writer believes has the potential…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Which UK shares could be takeover targets in 2025?

UK shares have done well this year, but a lot of the big returns have come from companies being acquired.…

Read more »