Director buys can be a sign that those with the most insight into a company view its shares as undervalued. Here we take a look at an ASX consumer staples share with multiple recent director buys.
What is insider buying?
Insider buying is the purchase of shares in a company by an officer or executive of that company, such as a director. Insiders usually have exclusive insights into the companies they manage and are likely to purchase shares when they view them as undervalued.
Insiders must only buy based on publicly available information and must inform the ASX of the trade by lodging an Appendix 3Y. Depending on the circumstances, the purchase by an insider of shares can be seen as a vote of confidence in a business.
With that being said, we've studied recent insider buys to bring you an ASX consumer staples share with multiple insider buys last week:
Freedom Foods Group Ltd (ASX: FNP)
Seven Freedom Foods directors acquired an aggregate of 584,374 shares in the company last week. Freedom Foods produces health foods including milk, plant-based milk, cereals, snacks, and nutritional products.
Shares in Freedom Foods have fallen from a high of $5.81 in November and are currently trading at $4.46 at the time of writing. Freedom Foods shares have trended up somewhat since the end of February when the company released its half-year results. The company reported strong growth in sales and profits following the successful launch of 40 new product formats.
Freedom Foods reported net sales of $277.1 million for the half, up 32.6% on the prior year. Gross margins improved to 27.1% from 24.7%, increasing earnings, with operating earnings before interest, tax, depreciation and amortisation (EBITDA) up 55.6% to $32.7 million. Statutory net profits of $5.4 million were reported, up 45.6%, and an unfranked interim dividend of 2.25 cents per share was declared.
Freedom Foods finalised the upgrades to its Shepparton UHT facility during the half, which doubled total processing capacity to 500 million litres per annum. In addition, strong growth in Australian retail groceries was reported, which was up 23%, above average category growth of 1.3%.
The second half is historically stronger for Freedom Foods, driven by seasonality. New product revenue streams from Freedom Foods' nutritionals capability are expected to positively impact sales and earnings. The company is looking to diversify sales and earnings growth from key markets and channels in Australia, China, and South-East Asia.
Foolish takeaway
With the S&P/ASX 200 Index (INDEXASX: XJO) taking a big hit today, the Freedom Foods share price is down by 9.24% at the time of writing.
While a single director buy may not be telling, several can provide a good indication that those best placed to know consider shares good value.
