This FTSE 100 stock’s down 50%, and a director just bought 8,000 shares

One low cost FTSE 100 inventory that’s caught my consideration is Prudential (LSE: PRU). It’s down 21% in 2024, 37% over one yr, and a whopping 50% over three years.

In my opinion, this chronically undervalues the life insurer relative to its long-term alternative. And it appears I’m not the one one to assume this as a result of a non-executive director at Prudential not too long ago purchased shares.

On 4 July, George Sartorel scooped up 8,000 shares at 725p for a complete worth of £58,000. This adopted current purchases by different administrators, whereas in June, CFO Ben Bulmer snapped up 50,000 shares at a mean worth of 761p for a complete of £380,795.

But the share worth simply retains falling. As I sort, it’s now at 676p. That’s its lowest stage since mid-2012!

Why insiders purchase

There could be a great deal of the explanation why an insider sells shares. Maybe they’ve a tax invoice, need to fund a member of the family’s wedding ceremony, or have been suggested to diversify their belongings.

However insiders solely purchase shares with their very own cash for one motive. They assume the inventory’s undervalued.

Due to this fact, it’s typically seen as a vote of confidence within the enterprise. In any case, who would know higher an organization’s prospects than the folks working it?

With the advantage of hindsight, a few of my worst investments have turned out to be the place there was an absence of insider shopping for (to not be confused with insider buying and selling, which is prohibited).

For instance, Ginkgo Bioworks (one in all my worst-ever picks earlier than I offered) has misplaced 87% of its market worth up to now yr. But past a few purchases in Could, no firm insiders have been shopping for the inventory on a budget. Fairly the other, in reality.

The lesson for me is that if the executives working a agency see no worth in its beaten-down inventory, this could be a purple flag. Many Prudential insiders are rising their pores and skin within the sport, so it is a inexperienced flag for me.

Prudential can be shopping for again shares

In June, the Asia-focused insurer introduced a large $2bn share buyback programme to run between now and mid-2026. This represents roughly 8% of its excellent inventory!

It additionally stated the 2024 annual dividend would develop by 7-9%. The ahead yield is just 2.5%, but it surely has the potential to extend because the agency will get again on observe after taking successful in the course of the pandemic.

Wanting ahead, Prudential stays bullish on its prospects throughout its markets in Asia and Africa. These nations have a mixed inhabitants of 4bn and higher progress potential than the West resulting from rising insurance coverage adoption charges.

One danger right here although is China, a large market the place shoppers proceed to tug again on spending. This would possibly affect the corporate’s progress charges within the coming quarters. It’s one thing to keep in mind and appears to be weighing on the share worth.

A possible cut price

Nonetheless, web revenue this yr is forecast to be $2.5bn, up from $1.7bn final yr. And the inventory’s buying and selling at a mere 9.1 instances this yr’s anticipated earnings per share. That’s even cheaper than the FTSE 100 common.

When I’ve money to put money into August, I’ll comply with these administrators and add this beaten-down inventory to my portfolio.