Large sell orders from board members who are familiar with a company can act as a red flag for investors. They suggest that the company insider is cautious on the outlook for the stock.
Here, we are going to highlight a large Non-Executive Director sale at Aston Martin Lagonda Global (AML:LN). Aston Martin is a luxury sports car company that operates in the United Kingdom, the Americas, the rest of Europe, the Middle East, Africa, and the Asia Pacific. It’s listed on the London Stock Exchange and currently has a market capitalization of £1.12 billion.
Aston Martin: insider selling
Regulatory filings show that on 29 October, MSY LTD, a company linked to Non-Executive Director Mahmoud El Sayed, sold 3.75m AML shares at a price of 55p per share. This sale – which netted the insider approximately £2.06 million – reduced MSY LTD’s holding by close to 50%.
Source: 2iQ Research
Intimate knowledge of the company
The sale is significant because El Sayed has been a director within Aston Martin since 2007 which suggests he knows the company intimately. He also has a background within wealth management and as Chief Executive Officer of a wealth management company he will be making investment decisions on a regular basis. This large sale of Aston Martin stock suggests he is nervous about the company’s future prospects.
Aston Martin has experienced extremely challenging trading conditions which saw the company post a half-year pretax loss of £227.4 million. It has been taking action to reduce supply but the outlook statement suggested trading remains challenging in many markets. The company has managed to successfully raise £125 million by issuing 250 million shares at 50p which strengthened the balance sheet and is positive news. Covid-19 remains an issue, however, and the outlook for the company is unlikely to improve in the short to medium-term.
The shares have bounced post the recent capital raise after Mercedes-Benz said it would lift its stake in Aston Martin to up to 20% by 2023. With the fundamentals unchanged it could be argued it has presented a selling opportunity for investors.
In light of the mainly unfavorable news, we see the insider selling here as a bearish signal. We interpret the recent insider selling as a sophisticated investor reducing his holding significantly because he sees the stock as overvalued and is worried about Aston Martin’s future prospects.