Diageo (LSE: DGE) shares have taken a huge hit recently. Currently, they’re trading nearly 50% below their all-time highs.
Is there an investment opportunity here after this pullback? One company director seems to think so – he just bought more than £500k worth of the FTSE 100 stock.
The power of insider buying
Insider buying activity can provide valuable insights for regular investors. Because insiders are some of the most informed participants in the market.
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These individuals tend to have far more information on their companies than the rest of us do. And if they’re buying company shares, it suggests that they believe the company is undervalued and that the share price is set to rise.
Of course, not every insider transaction is a valuable investment signal. Some trades are more informative than others.
Research shows that large purchases by top-level insiders tend to be the most informative. ‘Cluster buying’ (where multiple insiders are buying simultaneously) can also provide powerful investment insights.
A £500k buy
Going back to Diageo, the recent insider transaction looks interesting to me. Because we have a large trade from a very well placed individual.
The insider in focus is Dayalan Nagalan who is currently President, Africa as well as Chief Commercial Officer. On 14 February, he purchased 23,326 shares at a price of £21.44 per share.
This trade cost him a little over £500,000. That’s a large purchase by UK standards.
Beyond the size of the trade, a few things stand out to me here. One is that Nagalan is a member of Diageo’s Executive Committee (so he’s likely to have a good understanding of recent business trends).
Another is that he has a lot of experience at the company having previously served as Managing Director Great Britain, Ireland, and France and Managing Director Global Travel, among other roles. He should know the business very well.
Overall, I see this trade as quite bullish.
Should I buy more shares?
That said, I’m not going to rush out and buy more Diageo shares for my own portfolio on the back of this trade. I already have quite a large position here and I’d want to see the company’s performance improve before buying the stock again.
Recently, Diageo has been struggling due to lower levels of spending from consumers, changing attitudes towards alcohol, inventory problems, and elevated levels of debt on the balance sheet. All of these issues continue to be risks from an investment perspective, as do other issues such as weight-loss drugs and US tariffs.
I do believe this company has the ability to turn things around (and therefore could be worth considering as an investment today if one doesn’t have a position). After all, it owns some of the most well-known alcohol brands in the world such as Johnnie Walker, Guinness, and Tanqueray.
However, until the company starts to fire on all cylinders again, I’m going to put my money into other stocks. That’s because right now, there are plenty of other opportunities in the market.
