If insiders are selling large amounts of company stock, it can pay to approach the stock with caution. Insider sales can be a signal that the stock is overvalued or that the outlook for the company is deteriorating.
In this report, we are going to flag some large insider sales at AJ Bell PLC (AJB:LN). AJ Bell is a UK company that provides online investment platforms and stockbroker services. It’s listed on the London Stock Exchange and currently has a market capitalization of £1.8 billion.
AJ Bell: Insider Selling
Our records show that on 21 January, two insiders sold AJB stock. Bestfield Investments, a person closely associated (PCA) with Fergus Lyons, the AJ Bell Investcentre Managing Director sold 603,992 ordinary shares at a price of £4.61 per share. Meanwhile, Charles Galbraith, the AJ Bell Youinvest Managing Director sold 250,000 ordinary shares at a price of £4.61 per share. Combined, these insiders offloaded just under £4 million worth of stock.
This director dealing is worth highlighting because it is not the first time that insiders have sold large amounts of AJB stock recently.
In early December, Mr Galbraith sold 500,000 AJB shares at a price of £4.35 per share, reducing his holding by circa 20%, while CFO Michael Summersgill sold 335,196 shares, reducing his holding by circa 25%.
Then, in mid-December, three insiders offloaded shares, including Group Finance Director Roger Stott, who sold £1.5 million worth of stock and reduced his holding by 78%.
And in late-December, Founder Andrew Bell and Fergus Lyons sold 5.4 million shares, raising approximately £25 million.
Clearly, there is a trend here.
AJ Bell recently posted a solid set of results for the three-month period ended 31 December 2020. Total customer numbers increased to 312,309, up 30% over the last 12 months while total assets under administration increased to £62.5 billion, up 14% on the figure at the end of 2019.
It’s worth noting, however, that the stock currently trades at a very high valuation. Analysts expect AJ Bell to generate earnings per share of 9.76p this financial year, which puts the stock on a forward-looking P/E ratio of about 47. By contrast, rival Hargreaves Lansdown trades on a forward-looking P/E ratio of about 28.
It’s also worth noting that competition in the UK investment space is heating up with rival Trading 212 continuing to capture market share. Trading 212 currently has the number one UK trading and investing app, based on the number of downloads.
In light of this high valuation, we see the insider selling here as a bearish signal.