Image source: Getty Images
One thing I always keep an eye on is director dealing. Company insiders have access to far more information on their businesses than the rest of us do, so their trades can provide valuable insights. Last week I spotted some really interesting insider activity in the FTSE 250 index. Here’s a look at the stock and the trades in detail.
In an uptrend
The stock in focus is IG Group (LSE: IGG). It’s a leading provider of financial market trading and investment solutions.
This stock – which had been in a strong uptrend for about two years now – has experienced a bit of a pullback recently. In the first half of September, it was trading above £11.60. However today, it’s trading for £10.76.
Insiders are buying the dip
What’s interesting is that two top-level insiders have bought the dip. Last week, both CEO Breon Corcoran and CFO Clifford Abrahams snapped up some shares.
On 30 September, the CFO bought 5,000 at a price of £10.72 per share. This trade cost him approximately £54,000.
Meanwhile, between 30 September and 1 October, the CEO snapped up 75,000 at an average price of £10.74. This buying activity set him back around £805,000.
So, in total, the two insiders invested around £859,000 in the company. It’s worth noting that while insiders sell stock for many reasons, they only buy for one reason – to make money.
Notable buys
In my view, this director dealing activity shouldn’t be ignored.
For a start, we have two top-level directors buying stock. There are usually few people who have a better understanding of a business and its latest performance trends than its CEO and CFO.
The trade from the CEO is also substantial. A buy worth £805k suggests that he believes the stock is significantly undervalued at current prices.
Growth potential
Zooming in on the business itself, IG is doing some really innovative things right now.
For example, it recently became the first UK-listed broker to allow customers to buy and sell crypto assets. It also recently announced the acquisition of Independent Reserve, a crypto exchange based in Australia.
Given that the company also looks well placed to benefit from a) the current bull market in stocks and b) increased volatility in the financial markets, the outlook is attractive in my view.
Low valuation
Turning to the stock’s valuation, it’s very low at the moment. With City analysts expecting earnings per share of 110p for the year ending 31 May 2026, the forward-looking price-to-earnings (P/E) ratio is under 10.
I see quite a bit of value on offer at that earnings multiple. A dividend yield of 4.6% – above the FTSE 250 average – also signals value to me.
Attractive risk/reward
Of course, the stock does have its risks. Competition from rivals such as Robinhood is a big one – today Robinhood is doing some incredible things.
A bear market in stocks or a lack of volatility in the markets could also impact earnings. These scenarios could lead to less trading on the group’s platforms.
I like the risk-reward set-up at the current share price, however. In my view, investors should consider following the CEO and the CFO into the stock.
