As famed fund manager Peter Lynch once said: 'Insiders might sell their shares for any number of reasons, but they buy them for only one: They think the price will rise." Although accurate, investors do also need to consider management's motivations when selling, as CEO's selling significant chunks of shares have been a recurring theme in a number of big losers over the years.
One company that caught my eye through recent ASX director dealings was construction software company Aconex.
Key Aconex Ltd (ASX: ACX) insiders have been selling the company recently, with CEO Leigh Jasper disposing of 220,000 shares between 9 and 16 September at around $6 each. In late August he also converted 220,000 options into shares at $0.95 apiece, and sold 180,000 shares around $7.50. At the same time, Senior Vice President (Product & Engineering) Robert Phillpot converted 100,000 options into shares at $0.95 apiece, and sold 235,000 shares at $6.50.
Should shareholders be concerned?
This apparent heavy selling might have concerned some, but Mr Jasper and Mr Phillpot retain over 11 million shares (~5% of the company) each and so their sales are probably not material to the investment case.
I couldn't find any explanation for the sales in recent company announcements but it looks like a case of heavily aligned executives liberating some of their investment as the company grows. Management personnel deserve to be rewarded for their investments the same as regular shareholders, and given the size of their continuing stake in the company investors probably don't need to be too concerned.
Independent director Rosemary Hartnett also bought 2,000 shares at $7.25 recently.
Is Aconex a buy?
Aconex shares are down some 20% in the past month, and the company is still richly priced in terms of its price to earnings (P/E) ratio, which is over 100. However, the company has been delivering rapid growth combined with big increases in profit as well as widening profit margins, which could quickly justify today's prices. Analysts at the likes of Credit Suisse and Citi have price targets between $7 and $9 on the stock, suggesting there could be value in the company today.
