Insiders love buying when their stock is cheap - so who has been making moves?

Welcome to the fifth instalment of our quarterly breakdown of ASX insider moves, brought to you by myself, my colleague Kerry Sun, and Dr David Allen from Plato Investment Management. 

Quick recap

If you're new to the series, you can get a recap on the research that drives the series and the previous instalments via the links below:

• Nine stocks insiders are buying - and why it matters
• Insider trades: The most important ASX insider buys and sells for the June quarter
• Insider trades: The most important ASX insider buys and sells for the September quarter
  
• Directors went Christmas shopping: Insider moves for the December quarter
  

As always, who is buying and selling makes for fascinating reading. We’ll be sharing with you the following: 

• companies that have seen multiple insiders buying and selling during the period
  
• analysing which directors have been buying into weakness or momentum, and vice versa
• the top insider buys and sells by dollar amount
• Dr Allen will also share a fund manager's perspective, highlighting why it pays to "follow the money" by looking back at a previous successful trade. He also shares a new opportunity that has come up

Multiple insiders making moves

As always, when multiple insiders buy or sell, my interest is piqued. During the March quarter, 32 companies (down from 45 in the prior quarter) had three or more different insiders making moves, which are listed below. I've also analysed under what type of circumstances the transactions occurred, based on 3-month and 1-year performance. 

Please scroll to the right for the full dataset - scroll bar at the bottom of the table

* Please note that LSF was not discretionary director selling but was a result of pay-out of long-term staff incentives following a mandatory 3-year escrow

As has been explained in the first wire that introduced this series, research shows that the percentage of insider trades falls away as the share price moves from around 52-week lows, to very close to the 52-week highs. Put simply, insiders buy more when their stocks are incredibly cheap, and buy less when they are expensive (or, as will be seen below, start selling)

It should come as no surprise then that the main set of conditions under which insiders in the table above were buying was "buying both weakness" - which translates to buying stock, when the share price is down over BOTH a 3-month and 1-year period. 11 of the 32 sets of transactions occurred under these conditions. As for the rest; 

• 9 instances saw insiders buying on 3-month weakness (despite 1-year positive performance) - this cohort is 'buying the dip'
• 4 instances saw insiders buying on both 3-month and 1-year strength - these are the momentum riders
• 3 instances saw insiders selling on both 3-month and 1-year strength - with the 1-year share price gains for the stocks in this cohort up 140% (Audinate (ASX: AD8)), 136.9% (Droneshield (ASX: DRO)) and 224% (Temple and Webster (ASX: TPW))
• 1 instance of selling L1 Long Short Fund (ASX: LSF) was not discretionary director selling but was a result of pay-out of long-term staff incentives following a mandatory 3-year escrow.
  

The big counts

In the March quarter, we saw five directors buying stock in both Baby Bunting (ASX: BBN) and Whitehaven Coal (ASX: WHC). 

• For Baby Bunting, the total was a modest $138,000, with most of the transactions occurring on the 22nd and 23rd of February which, as can be seen below, has proven to be a nice little trade so far. 

• For Whitehaven Coal, the total was a modest $418,000, with most of the transactions occurring on the 16th and 20th of February. 

Selling into strength: It's not always bad

The analysis below was contributed by Kerry Sun.

Picture this: You're the Managing Director, Founder and/or Chief Executive of a richly valued but fast-growing company. Between mid-2021 and mid-to-late 2022, your company's valuation took a significant hit, down anywhere from 20 to 70%. Valuations have rebounded sharply in the past couple of months, reaching or even surpassing the highs of mid-2021. Your company is reporting record earnings and expects another set of record numbers for the year ahead. Given all this, selling some shares might sound pretty reasonable. 

This has been the case for several directors in the March quarter. Although their selling activities initially caused some short-term fluctuations in share prices, in the majority of instances, the share prices quickly recovered.

The companies that fit the above description include (amount sold plus % of market cap):

• Audinate ($4.6 million or 0.27%)
• Droneshield ($11.9 million or 2.52%)
• DUG Technology ($666,970 or 0.21%)
• Helia Group ($288,418 or 0.03%)
• Temple & Webster ($19.7 million or 1.36%)
• Ventia Services ($5.6 million or 0.18%)
  
• Wisetech Global ($600,000 or less than 0.01%)
  

One of the most intriguing selldowns was from DUG Technology - a $330 million market cap company that provides high-performance computing as a service (i.e. clients access supercomputing resources via the cloud, without the need to own their own infrastructure). In late November 2023, Managing Director Matthew Lamont sold 2.5 million shares ($4.6 million) and in the March quarter, Non-Executive Director Louise Bowner sold a further $666,970 worth of shares.

Both selldowns resulted in some short-term share price volatility. Although it might have taken a few weeks for the stock to stabilise, it eventually resumed its upward trajectory, fuelled by the accelerating demand for AI.

A Fund Manager's Perspective

The analysis below was contributed by Dr David Allen

“Follow the money!”, the line immortalised in the 1970s’ classic All the President’s Men reminds us that the source of political corruption can be brought to light by following the financial paper trail. 

In the same vein, forensically scrutinising insider transactions is an invaluable way of helping to anticipate moves in company revenue, earnings and prices. We are in no way suggesting corruption is afoot, merely self interest. Indeed, last quarter, in this column, we noted that the CEO of Liontown (ASX: LTR) had disposed of around $1m worth of stock in December. A few days after that wire was published, the company disclosed that its financing syndicate had fallen through, and the stock price fell 26% in a day.

What are we seeing at Plato this quarter? 

In our long/short fund, we sold out of intellectual property services firm IPH Ltd (ASX: IPH). The CEO and Managing Director sold 100,000 shares on 27 February. 

Several observations piqued our interest. 

• First, the size of the transaction (over $600k). 
• Secondly, CEO and CFO transactions are the most informative. 

Further, the stock price had been weak, off around 40% since 2022. As Chris rightly pointed out, insider selling after periods of stock price weakness is unusual and tends to be a bad omen for things to come.

We are also seeing a number of other warnings signs for IPH Ltd using Plato’s 150 Red Flags. Cashflow margin has been falling over the last two years, there has been an increased capitalisation of intangibles, our models suggest aggressive accounting, and of course the CEO is selling when the stock price has already taken a beating.