Welcome to edition 562 of Insider Weekends. Insider buying decreased last week with insiders purchasing $116.21 million of stock purchased compared to $154.4 million in the week prior. We saw several repeat purchases this week with Farhad Nanji buying more of PennyMac Financial Services (PFSI)) and another director joining Terry Considine in buying shares of apartment REIT AIV. Selling increased with insiders selling $2.49 billion of stock last week compared to $2.2 billion in the week prior.
Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week went up to 21.41. In other words, insiders sold more than 21 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the prior week, when the ratio stood at an unusually high 14.27.
Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.
Notable Insider Buys:
1. PennyMac Financial Services, Inc. (PFSI): $65.67
Director Farhad Nanji acquired 292,146 shares of this mortgage finance company, paying $64.08 per share for a total amount of $18.72 million. These shares were purchased indirectly by MFN Partners, LP.
It is good to see Mr. Nanji continue buying shares of PennyMac even as this originator and servicer of mortgages decided to increase its share buyback authorization from $500 million to $1 billion. This is a significant buyback considering the company’s market cap is only $4.55 billion. We like to track companies where insiders are buying stock and the company is also buying back its own stock in a screen called the Double Dipper.
We wrote the following about Mr. Nanji’s insider purchase last week,
A big part of the insider buying was driving by IPO related buying in three companies and a long-term director of mortgage lender PennyMac Financial Services (PFSI), Farhad Nanji, buying nearly $55 million worth of stock through his investment firm MFN Partners Management. The firm is a Harvard backed investment management company with a value oriented focus and over $2 billion in AUM.
In an overvalued market, PennyMac trades at a trailing P/E of 3.11 and a forward P/E below 4. Full year 2020 earnings of $20.92 per share increased an astounding 328% from $4.89 per share in 2019 driven by a 151% increase in revenue to $3.7 billion in a red hot housing market. Anyone that has invested in a company in a cyclical industry is well aware of how cyclical stocks look cheapest at their cyclical peak. This could very well be the case with PennyMac since earnings expected to decline in 2021 and 2022. Analyst earnings estimates for 2021 and 2022 are $17.66 and $11.44 per share respectively.
The large buyback by the company might offset some of the decline in earnings (at least at the per share level) and it looks like this insider purchase points to the good times continuing longer than the market is anticipating.
You can view the list of recent insider transactions for PennyMac Financial Services, Inc. here.
|P/E: 3.14||Forward P/E: 5.56||Industry P/E: 21.22|
|P/S: 0.88||Price/Book: 1.37||EV/EBITDA: N/A|
|Market Cap: $4.55B||Avg. Daily Volume: 983,835||52 Week Range: $18.22 – $70.99|
2. GTY Technology Holdings Inc. (GTYH): $6.36
Director Harry L. You acquired 3,424,211 shares of this software-as-a-service (SaaS) company, paying $3.93 per share for a total amount of $13.46 million. Mr. You increased his stake by 1073.49% to 3,743,190 shares with this purchase.
You can view the list of recent insider transactions for GTY Technology Holdings Inc. here.
|P/E: N/A||Forward P/E: -39.75||Industry P/E: 57.83|
|P/S: 7.29||Price/Book: 1.14||EV/EBITDA: -18.41|
|Market Cap: $350.63M||Avg. Daily Volume: 244,377||52 Week Range: $2.16 – $8.28|
3. Apartment Investment and Management Company (AIV): $6.28
Shares of this apartment REIT were acquired by 2 insiders:
- Director Terry Considine acquired 300,000 shares, paying $5.72 per share for a total amount of $1.72 million. These shares were purchased indirectly by a retirement plan.
- Director Robert A. Miller acquired 20,000 shares, paying $5.88 per share for a total amount of $117,591. Mr. Miller increased his stake by 39.81% to 70,234 shares with this purchase.
You can view the list of recent insider transactions for Apartment Investment and Management Company here.
|P/E: N/A||Forward P/E: 24.15||Industry P/E: 75.22|
|P/S: 6.15||Price/Book: 1.87||EV/EBITDA: 72.31|
|Market Cap: $937.03M||Avg. Daily Volume: 5,049,916||52 Week Range: $3.28487 – $6.48|
4. Arcus Biosciences, Inc. (RCUS): $28.83
Director Kathryn E. Falberg acquired 20,000 shares of this biotech company, paying $28.35 per share for a total amount of $566,996. These shares were purchased indirectly through a trust.
You can view the list of recent insider transactions for Arcus Biosciences, Inc. here.
|P/E: N/A||Forward P/E: -7.99||Industry P/E: N/A|
|P/S: 26.36||Price/Book: 3.74||EV/EBITDA: -11.01|
|Market Cap: $2.04B||Avg. Daily Volume: 548,838||52 Week Range: $14 – $42.36|
5. Elastic N.V. (ESTC): $114.53
Director Chetan Puttagunta acquired 5,000 shares of this software application company, paying $111.62 per share for a total amount of $558,087. Mr. Puttagunta increased his stake by 336.25% to 6,487 shares with this purchase.
I used to discount insider purchases by directors and used to focus most of my attention on purchases by the management of a company. After several conversations with subscribers who have a long investing track record and after observing how companies with director purchases have performed, I have changed my mind in recent months. If a director is involved with a company for several years or is the Chair of the Board, I now pay attention to those purchases.
The insider purchases of Southern Copper (SCCO) by Mexico’s reclusive billionaire Mr. Mota-Velasco in late 2015 at prices ranging from $24 to $27 per share when Copper was trading at a multi-year low near $2.10/lb comes to mind. The insider purchases of both Netflix (NFLX) and Zillow (Z) by Jay Hoag that we discussed several times in the past also come to mind.
I have followed Mr. Puttagunta on Twitter for some time now, more on account of his tweets about the Indian dessert Gulab Jamun than his thoughts about software companies. I got a chance to dig in and learn more about him after this insider purchase and quite clearly I was following him for the wrong reasons. Mr. Puttagunta has served on Elastic’s board since June 2014, long before the company went public in 2018. Benchmark Capital’s Bill Gurley had this to say about Mr. Puttagunta on his blog Above The Crowd in July 2018,
More recently, Peter encountered a once-in-a-generation venture capitalist on the board of Elastic, Chetan Puttagunta. In every way, from how Chetan discovered the Elastic opportunity by downloading the product and using it, to how he built a deep trusting relationship with the team, he demonstrated the qualities that define Benchmark and our aspirations to serve entrepreneurs. Chetan’s energy and devotion, his capacity to listen and to provide crisp, well reasoned advice set him apart in that elusive way that leads him to be a CEO’s first phone call.
In addition to Elastic, Chetan, at just 32 years of age, has developed a foundation of successful investments and relationships in the software ecosystem. He led the investment in Mulesoft (acquired by Salesforce for $6.5B) and MongoDB (NASDAQ: MDB). Those founders and CEOs called Chetan “the MVP of our board” and said that, “despite being nearly 20 years younger than everyone else, Chetan managed to deliver insights no one else had.”
The recent rotation from growth to value had caused several high growth technology companies to decline sharply from their all time highs and Elastic was no exception. The stock lost nearly a third of its value from a peak of $171.20 on January 21, 2021 to current levels. It was interesting to see that Mr. Puttagunta purchased these shares directly and not indirectly through Benchmark Capital as is usually the case with most VC insider purchases of public companies.
You can view the list of recent insider transactions for Elastic N.V. here.
|P/E: N/A||Forward P/E: -238.6||Industry P/E: 57.83|
|P/S: 18.54||Price/Book: 22.54||EV/EBITDA: -90.47|
|Market Cap: $10.28B||Avg. Daily Volume: 1,085,482||52 Week Range: $49.12 – $176.49|
You can view the full list of purchases from this Insider Buying page.
Notable Insider Sales:
1. MP Materials Corp. (MP): $35.15
Shares of this integrated rare earth mining company were sold by 3 insiders:
- Chairman and CEO James H. Litinsky sold 4,603,123 shares for $33.78, generating $155.47 million from the sale. These shares were sold indirectly by various entities.
- Director Daniel Allen Gold sold 1,598,801 shares for $33.78, generating $53,999,506 from the sale. These shares were sold indirectly by various entities.
You can view the list of recent insider transactions for MP Materials Corp. here.
|P/E: N/A||Forward P/E: N/A||Industry P/E: N/A|
|P/S: 44.68||Price/Book: N/A||EV/EBITDA: 126.47|
|Market Cap: $6B||Avg. Daily Volume: 5,929,527||52 Week Range: $9.78 – $51.77|
2. Ulta Beauty, Inc. (ULTA): $313.62
Director Charles Heilbronn sold 523,666 shares of this beauty retailer for $306.17, generating $160.33 million from the sale. These shares were sold indirectly by Mousseluxe SARL.
You can view the list of recent insider transactions for Ulta Beauty, Inc. here.
|P/E: 100.84||Forward P/E: 26.38||Industry P/E: 37.04|
|P/S: 2.87||Price/Book: 8.82||EV/EBITDA: 26.38|
|Market Cap: $17.63B||Avg. Daily Volume: 826,254||52 Week Range: $168.11 – $351|
3. Facebook, Inc. (FB): $298.66
COB and CEO Mark Zuckerberg sold 281,250 shares of Facebook for $287.09, generating $80.74 million from the sale. These shares were sold indirectly by various entities.
You can view the list of recent insider transactions for Facebook, Inc. here.
|P/E: 29.6||Forward P/E: 22.07||Industry P/E: 41.34|
|P/S: 9.89||Price/Book: 6.63||EV/EBITDA: 20.23|
|Market Cap: $850.49B||Avg. Daily Volume: 20,719,566||52 Week Range: $158.51 – $304.67|
4. Snowflake Inc. (SNOW): $236.79
Shares of this software application company were sold by 4 insiders:
- Director Jeremy Burton sold 168,218 shares for $225.63, generating $37.96 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
- CEO and Chairman Frank Slootman sold 100,000 shares for $229.07, generating $22.91 million from the sale. These shares were sold indirectly by a trust.
- President of Products Benoit Dageville sold 28,724 shares for $226.63, generating $6.51 million from the sale. These shares were sold indirectly by a trust.
- Director John Dennis McMahon sold 9,090 shares for $230.55, generating $2.09 million from the sale.
You can view the list of recent insider transactions for Snowflake Inc. here.
|P/E: N/A||Forward P/E: -415.42||Industry P/E: 64.74|
|P/S: 115.47||Price/Book: 13.81||EV/EBITDA: -121.06|
|Market Cap: $68.36B||Avg. Daily Volume: 4,555,329||52 Week Range: $205.07 – $429|
5. Medical Properties Trust, Inc. (MPW): $21.66
Chairman, President & CEO Edward K. Aldag sold 710,000 shares of this healthcare REIT for $21.21, generating $15.06 million from the sale.
You can view the list of recent insider transactions for Medical Properties Trust, Inc. here.
|P/E: 26.74||Forward P/E: 17.19||Industry P/E: 76.49|
|P/S: 9.89||Price/Book: 1.6||EV/EBITDA: 18.69|
|Market Cap: $12.56B||Avg. Daily Volume: 4,125,920||52 Week Range: $15.25 – $22.75|
You can view the full list of sales from this Insider Sales page.
Disclaimer: I hold long positions in Designer Brands (DBI), Twitter (TWTR), Twilio (TWLO), Zillow (Z) and Zoom (ZM). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.