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.
Let’s head to the next page of this insider trading article, where we will discuss the insider buying registered at two other companies.
Cloud Technology Company Sees Board Member Buy Shares
Actua Corp (NASDAQ:ACTA) had one member of its boardroom buy a sizable block of shares earlier this week. H. Richard Haverstick Jr., appointed to the company’s Board in early May, purchased 15,000 shares on Monday at prices varying from $9.30 to $9.44 per share, which lifted his ownership to 23,149 shares.
The multi-vertical cloud technology company serving commercial and property and casualty insurance, wealth management, government communications and environmental, health and safety markets, has seen its shares plummet by 20% since the beginning of 2016. Actua Corp (NASDAQ:ACTA)’s revenue for the first quarter of 2016 increased by 13% year-over-year to $34.61 million, mainly due to additional customer revenue at three of its four businesses. Meanwhile, the increase in customers mainly reflected the increased spending on sales and marketing initiatives. The company may seek to engage in merger and acquisition activities in the future to expand its business operations. While Actua’s first-quarter top line recorded a double-digit increase, the company’s net loss widened to $8.52 million from a $7.95 million net loss recorded a year ago.
There were five hedge funds followed by Insider Monkey with long positions in the cloud technology company at the end of March, as compared to seven registered at the end of the previous quarter. Those five hedge fund vehicles amassed 2.4% of the company’s outstanding common stock. Jim Simons’ Renaissance Technologies LLC upped its position in Actua Corp (NASDAQ:ACTA) by 89% during the January-to-March period to 490,819 shares.
The CEO of This Staffing Company Buys Shares after Issuing Downbeat Outlook
The man in charge of Korn/Ferry International (NYSE:KFY) was caught buying some shares earlier this week. CEO Gary D. Burninson snatched up 2,500 shares on Tuesday for $22.60 each and 1,500 shares on Wednesday at $22.30 apiece. Following the recent purchases, Mr. Burninson currently holds an ownership stake of 181,372 shares.
The insider buying comes shortly after the Los Angeles-based executive search and personnel specialist issued a downbeat outlook for its first quarter of fiscal 2017. Korn/Ferry International (NYSE:KFY) shares have plunged 13% in the past five trading sessions and are down 33% for the year. The company, once known as a pure-play executive search firm, seeks to transform into “the preeminent global people and organizational advisory firm”. The company completed the $452 million-acquisition of human resources consulting firm Hay Group in late 2015, whose integration will mostly complete in its first quarter of fiscal 2017. Korn Ferry reported total revenue of $1.35 billion for fiscal 2016 that ended April 30, up from $1.07 billion recorded a year ago. Going back to the aforementioned acquisition, the staffing company plans to consolidate office space further and eliminate additional operating and general and administrative expenses, which would result in incremental annualized savings in the range of $17 million-to-$23 million. Meanwhile, the company’s fee revenue grew 7.5% year-on-year on a reported basis and 12.4% on a constant currency basis if excluding fee revenue related to the Hay Group acquisition.
Korn Ferry fell out of favor with the asset managers tracked by our team during the first quarter of 2016, as the number of managers invested in the company fell to 15 from 21 quarter-over-quarter. Royce & Associates, founded by Chuck Royce, was the owner of 914,494 shares of Korn/Ferry International (NYSE:KFY) at the end of March.