Documents released today show that Xero Limited (ASX: XRO) founder and former CEO Rod Drury sold $116 million of shares last week. Is it time to jump ship?
About Xero
Founded in New Zealand in 2006, Xero has become the dominating player in the business and accounting software market in Australia, New Zealand and the UK. Employing more than 2,300 people, Xero helps more than 1.8 million subscribers manage their accounting and tax obligations.
Is Xero Overvalued?
News that the founder of Xero has sold a significant number of shares might have some investors questioning whether Xero shares are overvalued. After all, if he knows everything about the company and sells his shares, it’s spooky to think that he knows something we don’t.
Drury disposed of all two million of the shares on 21st May 2019 at an average sale price of $58. That represents a 2.9% discount to Xero’s current share price.
While the question is worth asking, it should also be noted that directors often sell their shares for a multitude of reasons. The sale could be for personal reasons, tax purposes or any other use.
It is also worth noting that Drury still holds 15,719,779 shares — worth over $900 million — so he is still heavily invested in the company.
What Will This Mean For the Share Price?
It’s possible the share price could trade lower today because of the number of shares sold and because they were sold below the current market price. However, this sale doesn’t take away from the quality of the business and shouldn’t deter a long-term investor, in my opinion.
Xero has been a strong performer on the ASX recently, with shares up 60% in the last six months. Their annual result released two weeks ago showed positive growth in the company and sent the share price 10% higher.
If I was a Xero shareholder, I’d still be comfortable holding after today’s announcement.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
