Welcome to edition 576 of Insider Weekends. At the start of each quarter and close to its end, we often see a decline in insider activity and this slows down our idea discovery process. This last week was no different and taken individually there weren’t a whole lot of interesting insider purchases but a trend we have been seeing stood out. This trend is the buying of stock in new IPOs, which led Olivier Goudet to buy shares of Krispy Kreme from the underwriters of the IPO and Dan Loeb’s Third Point Ventures to buy shares of cybersecurity company SentinelOne (S).
IPOs provide early investors with an exit and employees a long awaited liquidity event. It was uncommon to see insiders buy shares in an IPO. We have seen this change in recent months with insiders of dating app Bumble (BMBL) buying shares, Dustin Moskovitz’s purchases of productivity software company Asana (ASAN) through a 10b5-1 trading plan and purchases by insiders of KKR backed mobile app marketing company AppLovin (APP). The most interesting part of this behavior is that it comes at a time when the number of IPOs are at a record high and so is venture capital investment into private companies, which has allowed companies like Stripe to reach valuations approaching $100 billion even before considering an IPO.
Insider buying declined last week with insiders purchasing $126.91 million of stock purchased compared to $256.32 million in the week prior. Selling also decreased significantly to $1.72 billion compared to $4.37 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 dropped to 13.52. In other words, insiders sold almost 14 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the prior week when the ratio stood at 17.05.
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.