Many investors and analysts believe corporate insiders buy shares of their own companies because they deem those shares severely undervalued. Why else would they want to buy shares? However, there appears to be yet another reason executives and Board members usually buy shares in their companies, so investors need to make a clear distinction between forced insider buying and self-propelled insider buying. Allow me to explain.
Numerous publicly traded companies are using stock ownership guidelines to encourage stock ownership by their executives and employees. But why would anyone impose such guidelines? In theory, stock ownership assists the alignment of executives’ financial interests with those of shareholders. The standard guidelines call for Chief Executive Officers to own a block of shares equal in value to at least five times their base salary, with multiples decreasing for executives below the so-called CEO level. However, this does not necessarily imply that insiders’ purchases are not indicative of future stock performance, as insiders tend to use their ability to time the market and employ their contrarian approach to investing even if they are forced to increase their stock ownership. Having this in mind, the following article will list three companies that had their executives and Board members report insider buying with the SEC on Wednesday.
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Oil and Gas Company Has Two Executives Participate in Public Offering
Earthstone Energy Inc. (NYSEMKT:ESTE) had two executives buy shares earlier this week, both of whom purchased shares from the company’s recent public offering. Executive Vice President Ray. J. Singleton Jr. purchased 9,500 shares on Tuesday at $10.50 apiece, lifting his overall holding to 527,502 shares. More importantly, President and CEO Frank A. Lodzinski snapped up 24,500 shares on the same day for $10.50 each. After the recent purchase, Mr. Lodzinski currently owns 174,500 shares.
The growth-oriented independent oil and gas company recently completed a public offering of 4.5 million shares, which generated net proceeds for roughly $44.7 million. Earthstone Energy Inc. (NYSEMKT:ESTE), whose primary assets are located in the Eagle Ford trend of South Texas and the Williston Basin of North Dakota, plans to use the raised capital to repay outstanding debt under its revolving credit facility and cover general corporate expenses. The net proceeds may also be used to cover expenses associated with the completion of 12 gross wells, drilling and completion activities, leasehold interest, and property acquisitions. As commodity prices have recovered meaningfully since early 2016, the company plans to ramp up production this summer.
The oil and gas company has seen its market value plunge by 21% since the start of 2016. In mid-May, Earthstone Energy completed an all-stock merger with Lynden Energy Corp., which created a growth-oriented company focused on the Midland Basin, Eagle Ford, and Bakken that produces roughly 4,900 barrels of oil equivalent per day. At closing, 21% of Earthstone’s outstanding shares were held by former Lynden shareholders. Thomas Bailard’s Bailard Inc. sold out its 19,388-share stake in Earthstone Energy Inc. (NYSEMKT:ESTE) during the March quarter.
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Let’s head to the next page of this insider trading article, where we will discuss the insider buying registered at two other companies.