With the Computershare Limited (ASX:CPU) share price at a 5-year high, should shareholders be viewing recent director actions as a cause for concern? Over the past 3 weeks since the half-year results, non-executive directors have sold down some $33 million worth of shares.
Non-executive directors Mr Christopher J Morris (also a founder) and Ms Penelope Maclagan have sold just under 2.5 million shares between them since the 23rd of February.
Should ordinary shareholders do the same?
There are several things to consider when directors sell shares:
- Why are they selling? (is the company bad, or is it something else e.g. a tax bill, buying a house, a divorce, etc)
- Are they still adequately aligned with shareholders (this is more important for management figures like CEOs and CFOs)
- What are the prospects of the company? (in terms of share price, growth, and risks)
- The 'value' of the signal (how much information does a director share sale really give you?)
- The timing (sales following loss of a key contract, for example, might raise additional concern)
- Times when directors were wrong (e.g., they bought or sold and shares went the opposite direction)
I've written more on the last 3 points in an earlier article, here. Talking specifically about Computershare, shareholders should remember that both Mr Morris and Ms Maclagan have been with the company more than 30 years. They retain 35 million and 11.8 million shares respectively – a sizeable stake. It would be entirely reasonable for them to take some money off the table.
Secondly, it's also important to note that Computershare shares are up 50% in the past year, and are at a 5-year high. Shares also appear highly priced, at an estimated 26 times full-year earnings – this, for a company that grew 'Management' earnings per share by just 4.4% at the latest half. Investors might also consider taking some profits.
