Top-level corporate executives such as CEOs tend to have an information advantage over other investors. If these insiders are selling company stock, it can be a bearish development.
Here, we are going to highlight a large CEO sale at Strix Group (KETL:LN). Strix Group is the global leader in the design, manufacture and supply of kettle safety controls and other components and devices involving water heating and temperature control, steam management and water filtration. It’s listed on Alternative Investment Market (AIM) of the London Stock Exchange and currently has a market capitalization of £460 million.
Strix Group: insider selling
Regulatory filings show that on 5 November the CEO of Strix Group, Mark Bartlett, sold 700,000 KETL shares at a price of £2.36 per share. This sale – which netted the insider approximately £1.65 million – reduced his holding by 17%.
Source: 2iQ Research
This sale stands out for several reasons. Firstly, it is a large sale. Our records show that it is the largest sale at Strix for several years. Our Insider Model views this sale as quite bearish.
Secondly, Bartlett has been with Strix Group since 2006. He became CEO in 2017 and is therefore likely to have significant knowledge of the inner workings of the company. The shares have had a strong run this year and this sale suggests he feels the stock is fully valued currently. Our data shows he has not sold any of his holdings in 2020 up until this point.
Priced to perfection
There is much to be hopeful about at Strix Group. The acquisition of Laica S.p.A in Italy and the construction of a new factory in China shows that the company is investing to secure future growth. A strong order book means that while the company’s H1 adjusted gross profit was down 17.6%, it is expected to be flat year on year.
However, with the stock up 20% over the last six months, it appears that the future growth has been factored in by the market. The stock now looks priced for perfection. If there are any teething problems with the acquisition of Laica or sudden delays in the new factory in China, the shares may struggle to hold the current levels. The dividend is an attraction to those seeking a yield but 100% of free cash flow was used to fund the latest payout and with net debt rising, there is a chance the payout could be cut in the future.
All things considered, we see the insider selling here as a bearish signal. It suggests that the CEO views the stock as fully valued currently.