Insider Weekends: Insider Buying In New IPOs

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.

M&A activity for the first half of 2021 eclipsed $770 billion and the Russell 2000 index trades at an estimated forward P/E of over 34. Given the year we have had, I am not considering the trailing P/E of most indices as they look artificially inflated. However this record pace of IPOs, the record pace of M&A, heightened private investment activity, a large jump in housing prices, increased insider selling activity and rampant speculation in certain stocks should give long-term investors pause. We have been positioning as such and in the last three months have scaled back position sizes in the monthly spotlight ideas we feature for our model portfolio.

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.

Notable Insider Buys:

1. Krispy Kreme, Inc. (DNUT): $19.29

Director Olivier Goudet acquired 294,118 shares of Krispy Kreme, paying $16.02 per share for a total amount of $4.71 million. These shares were purchased indirectly by Platin Capital S.a r.l.

You can view the list of recent insider transactions for Krispy Kreme, Inc. here.

2. HC2 Holdings, Inc. (HCHC): $3.87

Director Avram A. Glazer acquired 142,788 shares of this construction and engineering company, paying $3.94 per share for a total amount of $562,433. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for HC2 Holdings, Inc. here.

3. Piedmont Lithium Inc. (PLL): $71.05

Shares of this exploration and development company were acquired by 2 insiders:

• Director Susan C. Jones acquired 4,000 shares, paying $73.06 per share for a total amount of $292,260.
• Director Jeffrey T. Armstrong acquired 2,500 shares, paying $69.62 per share for a total amount of $174,044. Mr. Armstrong increased his stake by 14.29% to 20,000 shares with this purchase.

You can view the list of recent insider transactions for Piedmont Lithium Inc. here.

4. SVB Financial Group (SIVB): $575.24

Director Garen K. Staglin acquired 500 shares of this regional bank, paying $563.04 per share for a total amount of $281,520. Mr. Staglin increased his stake by 3.65% to 14,180 shares with this purchase.

You can view the list of recent insider transactions for SVB Financial Group here.

5. ExlService Holdings, Inc. (EXLS): $107.79

Director Garen K. Staglin acquired 2,500 shares of this operations management and analytics services provider, paying $107.12 per share for a total amount of $267,800. Mr. Staglin increased his stake by 10.25% to 26,899 shares with this purchase.

You can view the list of recent insider transactions for ExlService Holdings, Inc. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Facebook, Inc. (FB): $350.42

Shares of Facebook were sold by 2 insiders:

• COB and CEO Mark Zuckerberg sold 309,200 shares for $352.62, generating $109.03 million from the sale. These shares were sold indirectly by various entities.
• VP and General Counsel Jennifer Newstead sold 250 shares for $356.41, generating $89,103 from the sale.

You can view the list of recent insider transactions for Facebook, Inc. here.

2. Okta, Inc. (OKTA): $251.84

Director Benjamin A. Horowitz sold 159,600 shares of this identity management platform for $248.94, generating $39.73 million from the sale. These shares were sold indirectly by a trust.

You can view the list of recent insider transactions for Okta, Inc. here.

3. Zynga Inc. (ZNGA): $10.53

Shares of this social game services provider were sold by 3 insiders:

• Director Mark J. Pincus sold 2,500,118 shares for $10.94, generating $27.35 million from the sale. These shares were sold indirectly by various entities.
• Chief People Officer Jeffrey Miles Ryan sold 11,319 shares for $10.70, generating $121,113 from the sale.
• Chief Legal Officer Phuong Y. Phillips sold 2,480 shares for $11.00, generating $27,280 from the sale.

You can view the list of recent insider transactions for Zynga Inc. here.

4. Unity Software Inc. (U): $106.53

President and CEO John S. Riccitiello sold 229,372 shares of this real-time 3D development platform for $106.82, generating $24.5 million from the sale. 12,248 of these shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for Unity Software Inc. here.

5. BeiGene, Ltd. (BGNE): $329.25

Shares of this biotech company were sold by 2 insiders:

• Chief Executive Officer John Oyler sold 191,302 shares for $109.32, generating $20.91 million from the sale.
• President, COO & GM China Xiaobin Wu sold 10,180 shares for $325.53, generating $3.31 million from the sale.

You can view the list of recent insider transactions for BeiGene, Ltd. here.

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer: 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.