Directors have been splashing the cash at Morrisons (LSE: MRW), Imperial Brands (LSE: IMB) and Hikma Pharmaceuticals (LSE: HIK). Should you follow their lead and load up on shares of these three companies?
As expected, annual results from Morrisons on 10 March weren't great. The UK's no. 3 supermarket posted a 4% drop in turnover for the year, while underlying earnings fell 28%.
However, there were signs that the turnaround strategy of chief executive David Potts is starting to gain traction. Morrisons said it had achieved its initial aims to begin stabilising like-for-like sales, lowering costs and recruiting new talent. Free cash flow was also ahead of initial expectations, and a big chunk was taken out of net debt.
Coming on top of news a couple of weeks earlier that Morrisons has inked a deal to supply food to Amazon's Prime Now and Pantry customers, the company's prospects are looking more promising than they have for some time.
Mr Potts certainly seems to think so. On Wednesday this week, he splashed out £362,916 on 180,000 shares, paying 201.62p a share. You can buy at a slightly lower price today, and may want to consider doing so, with analysts forecasting a 36% uplift in earnings this year to give an attractive price-to-earnings growth (PEG) ratio of 0.5.
Tobacco group Imperial Brands has been enjoying rather better momentum in its business than Morrisons in recent years, and the company said in a trading update in February that it is well placed to meet expectations for its current financial year ending September 2016.
At the same time as David Potts was buying his Morrisons shares on Wednesday, Imperial non-executive director Steven Stanbrook was making his maiden purchase at the tobacco company.
Mr Stanbrook bought 5,000 American Depositary Shares (ADSs) at a bit over $111 a pop, and followed up with a further 3,986 at a similar price, yesterday. One Imperial ADS is equivalent to two ordinary shares, so we're effectively looking at a 17,972 share purchase at around 3,860p for a total outlay of not much shy of £700,000.
Imperial's shares are trading nearer 3,800p, as I'm writing, and are on a reasonable forward price-to-earnings (P/E) ratio of 16, with a decent yield of 4.1%, so following Mr Stanbrook's lead could be a good move.
Shares of Hikma Pharmaceuticals have been moving higher since the company released its annual results on 16 March. But the rising price hasn't put directors off buying.
Non-executive Robert Pickering picked up 2,500 shares at 1,856p a time (total investment, £46,400) on 21 March, followed by a second non-exec, Patrick Butler, who also bagged 2,500 shares, but paid 1,920p (£48,000) on 24 March, before chairman and chief executive Said Darwazah stepped up to the plate yesterday, increasing his interest in the company by 30,000 shares at 1,972p (£591,600).
Hikma, which is focused on the US and Middle East markets, has made substantial investment in R&D and M&A in recent years, the benefits of which are expected to accelerate from 2017. At a current share price of 1,960p, the 2017 P/E is about 17, which looks decent value for a company entering a new growth phase. So, this too could be a stock where it might pay to follow the directors.
Finally, I should say that here at the Motley Fool we believe you don't have to be a highly-paid company director to benefit from share ownership. Indeed, our experts have demonstrated that a seven-figure-sum stock portfolio is within the reach of many ordinary investors.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.