How to spot the next Gensol before it’s too late

Gensol Engineering, tied to BluSmart through its common promoter Anmol Jaggi, has seen its stock crash nearly 80% from its peak amid allegations of falsified debt records.

Now, questions about corporate governance are in the spotlight.

In February, months before rating agencies raised red flags, Gensol’s promoter offloaded ₹11.4 crore worth of stock.

Spotting the signs

Interestingly, in October 2024, the promoters had bought the stock from the open market at a much higher price, although the total amount used to buy was significantly lower than amount sold.

For a sharp-eyed investor, these transactions could have hinted at trouble well before the market reacted. History has shown that insider selling, while not always a red flag, can be a crucial signal—just as it was in the infamous Enron collapse, where insiders cashed out over $1 billion before the company imploded.

There is nothing illegal about insider buying or trading as long as it follows the rules laid out by regulators.

The insider information is available publicly and can help you get a good lead over other investors in shortlisting potential winners.

Imagine you’re playing a competitive video game. Multiple routes lead to a hidden treasure, but experienced players already know the best paths. If you could track their moves in real time, wouldn’t your chances of winning improve?

The stock market works similarly. Insiders—company executives and key stakeholders—are like seasoned players who understand the game better than most. They know the company’s financial health, future prospects, and hidden risks.

Also read: From profit to penalty: The perils of trading in your employer’s stock

By tracking insider activity, investors can gain valuable insights into potential winners and avoid financial pitfalls—just as those who watched Gensol’s insider transactions might have seen warning signs before the stock collapsed.

 Let's now take a look at the big insider buying transactions from the open market in the recent weeks.

While insider tracking is a useful starting point, it shouldn’t be the sole factor in investment decisions. Not all insider buying carries the same weight—some trades signal confidence, while others may not be as significant.

To make informed choices, investors should analyse additional factors such as financial health, market trends, and business fundamentals before jumping in.

SMART CLUE: A guide to insider buying signals

S – Size of the trade: A higher percentage increase in insider stake signals stronger confidence.

M – Market cap/size: Insider buying in smaller firms can indicate higher growth potential due to information asymmetry.

A – Avoid conflicting signals: Simultaneous buy and sell patterns in short intervals can be misleading.

R – Recurring buying pattern: Gradual and repeated insider buying suggests sustained confidence in the company.

T – Trends in industry/sector: Multiple insider purchases within the same industry indicate a positive sector-wide outlook.

C – Clustered trades: If multiple insiders buy at the same time, it strengthens the conviction behind the trade.

L – Low/attractive valuations: Insider purchases at lower valuations suggest they see the stock as undervalued.

U – Underlying fundamentals: Strong financials and business performance validate insider confidence.

E – Executive quality: Senior management or board members buying is more significant than lower-level executives investing.

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Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com