There is only one reason that management buy shares – they think it's a good time to buy. However, I've seen a myriad of reasons for management selling: to cover a tax bill, divorce and so on.
Sadly, for one reason or another, share prices often seem to fall after management sell shares. Kogan.Com Ltd (ASX: KGN) and Medical Developments International Ltd (ASX: MVP) are two recent examples.
So, some shareholders of Citadel Group Ltd (ASX: CGL) may be feeling a little nervous after the company announced that two founders, Dr Jakeman and Mr McConnell will be selling around 10% of their shareholdings to institutional investors to provide liquidity.
Both of the sellers received the Citadel Chairman's approval prior to the trade and will still hold around 27% of the company's shares between them and remain the largest shareholders by some margin.
The selling founders said: that they remain strongly committed to the business and its continuing pivot to software, the sell down was underwritten and conducted in an orderly manner, there is no intention to sell further shares in FY19 and any further sell downs would be done in an orderly off-market manner.
The Citadel share price has been a strong performer over the past year, rising by nearly 40%. I can understand why the founders chose this point in time to sell.
Foolish takeaway
If I were a Citadel shareholder I wouldn't be overly worried. They still own a significant portion of the business, Citadel has a very promising future and even at this elevated price I think it looks good value trading at 22x FY19's estimated earnings.
