A high-ranking company insider such as an Executive Chairman has a deeper insight into a company than most people familiar or interested in the company. Their trading activity can, therefore, provide clues about a stock’s future direction.
Here, we are going to highlight a large Executive Chairman sale at JD Sports Fashion (JD/:LN). JD Sports is an English sports and outdoor wear retailer. It sells its products via 2,488 stores as well as online and has a presence in 24 different countries. It’s listed on the London Stock Exchange and currently has a market capitalization of £7.3 billion.
JD Sports Fashion: insider selling
Regulatory filings show that on 30 October the Chairman of JD Sports, Alan Cowgill, sold 2.587 million JD/ shares at a price of £7.46 per share. This sale – which had a total value of around £19.3m – reduced his holding by 40%.
Source: 2iQ Research
The Executive Chairman’s sale looks interesting for a variety of reasons. Firstly, the sale is for a significant monetary amount and represents a large percentage of the Chairman’s holding. He also sold a large amount of stock in June. This suggests that the insider – who has been with the company for 16 years so is likely to have a very good understanding of the business – is concerned about either the company’s valuation or its long-term prospects.
Secondly, Alan Cowgill’s trading IQ for both buying and selling stock is 111. This number is higher than average and suggests he knows when JD Sports Fashion is overvalued or undervalued. Given his high IQ, investors should take note of his trading activity.
Resilient share priceJD Sports shares are currently only down by around 2% year to date. This is a result of the company outperforming the general retail market. In its latest half-year update like-for-like sales were up 10%. Covid-19 has led many people to invest in their mental health and look to pursue more outdoor activities. This positive impact may only prove to be a temporary boost and if Covid-19 causes a prolonged recession, the shares could underperform.
We see the large sale of stock by the Chairman as a bearish development. We think investors should be cautious as the sale suggests that JD Sports Fashion stock is fully valued currently.