The Collins Foods share price has been decimated this week, and 4 directors are buying the dip

Insiders are loading up on this ASX 200 share…

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The Collins Foods Ltd (ASX: CKF) share price had a month to forget in November.

During the period, the quick service restaurant operator's shares crashed almost 19%.

The entirety of this decline came at the end of month following the release of the company's half year results.

Why did the Collins Foods share price get sold off?

Although Collins Foods reported solid top line growth, inflationary pressure weighed on its profits. And while this was not unexpected, management had previously guided to these headwinds easing in the second half.

However, this is no longer expected to be the case, with management warning that "significant inflationary headwinds are continuing in both markets, with margin pressure expected to remain for the balance of FY23."

In addition, concerns that the Taco Bell brand could fail for a third time in Australia may have hit investor sentiment. There were hopes that the Tex-Mex quick service restaurant brand could be a key driver of growth in Australia in the future, but management has hit pause on new store openings and made an $11.9 million after tax non-cash impairment of eight Taco Bell restaurants.

Management is now aiming to save the brand by "refining every element of the business, from marketing and media spend to portioning and product quality."

Insider buying

It appears insiders at Collins Foods believe that the significant weakness in its share price has created a buying opportunity.

According to a series of change of director's interest notices, no less than four insiders have bought shares following its update. This includes its CEO, Drew O'Malley and its chair, Robert Kaye.

O'Malley snapped up 6,195 shares for a total consideration of $49,560 via an on-market trade on Wednesday. Whereas Kaye bought almost $40,000 worth of shares the same day via an on-market trade. Two other directors made on-market purchases totalling almost $32,000 and $78,000.

One broker that would be supportive of these purchases is Morgans. This week, its analysts have retained their add rating with a reduced price target of $9.50. This implies potential upside of 22% from current levels.

Motley Fool contributor James Mickleboro has positions in Collins Foods. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Collins Foods. The Motley Fool Australia has recommended Collins Foods. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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