Do recent director purchases suggest the Argo Blockchain share price is a bargain?

I like to keep an eye on directors buying and selling shares in their own companies. After two such recent transactions by the CEO and a director at cryptocurrency-focussed data centre operator Argo Blockchain (LSE: ARB), I have revisited the investment case for the company. Here’s what I think the transaction could indicate about the Argo Blockchain share price.

Director buying and confidence

There are different reasons directors may spend money on shares in their own companies. Those can include a desire to show commitment and a genuine belief in the company’s prospects.

There are rules against trading on certain types of information or within particular timeframes, in an attempt to avoid market manipulation. But in general, a director will be better informed about a company’s prospects than many other investors. As he knows the business, spends time considering its strategy and regularly reviews its business performance, the director of a company will often have a developed view on the outlook for his firm.

That can be wrong, of course. But in general, if a director puts his own money into shares in the company on whose board he sits, I take it as a positive sign. If Argo’s CEO is spending his own money on the company’s shares, I think it likely signals his confidence in the business outlook.

Buying around today’s Argo Blockchain share price

This month, Argo has reported two separate transactions under the rules requiring companies to inform the stock exchange of share transactions by their directors.

Both were regular market purchases, so these weren’t part of a stock remuneration scheme, for example. Director Sarah Gow added another 40,000 shares to her already sizeable holding. It now totals 2.74m Argo Blockchain shares. CEO Peter Wall spent around £100,000 on shares.

What I find interesting about these purchases is that they follow a challenging time for the Argo Blockchain share price. It has lost over half its value since its February highs, as I write this on Monday morning (although over the past year it is still up 1,033%). The sale went through around when the Argo Blockchain share price was £1.32 on the London market (one of the trades was denominated in dollars). At the market open today, the share price stood at £1.35. So it is very close to the level at which the director purchases took place.

Where next for ARB?

I was wary of the surge in share price at Argo earlier this year as I felt it was disconnected from the company’s fundamentals. As it has fallen back, however, I have started to see more potential value in it for my portfolio. Its strategy of selling some of its crypto holdings from time to time give it cash flows, which I prefer to the company just hoarding virtual currencies speculatively.

With profits set to increase in coming years and the share price far below its former level, I do see potential value here for my portfolio. Unlike some of the company’s directors, though, I still won’t be buying the shares around their current level. It remains too risky for my tastes. Crypto pricing is highly unpredictable, so the balance sheet value could crash at any moment. Rising regulatory involvement could also increase the cost of mining Bitcoin and other cryptocurrencies, hurting profitability.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.