Rovi CEO Scooping Up Shares Ahead of Earnings

Cable  TV software maker Rovi Corporation (NASDAQ:ROVI) doesn’t report Q2 earnings until July 30. But already, ahead of earnings, one shareholder is scooping up shares — Rovi’s own CEO.

This is according to a Form 4 filing on insider share purchases filed with the SEC yesterday, which confirms that on July 6, company CEO Tom Carson acquired 10,000 shares of Rovi at an average purchase price of $15.88 per share.

Should you do the same?

What does it mean to you?
The fact that Rovi’s own CEO is buying shares ahead of the company’s impending earnings report certainly sounds propitious for good news coming July 30. But before you assume an “earnings beat” is in the bag, consider: Carson’s purchase Monday amounts to a sizeable $158,000 investment. But even so, it’s just a fraction of the CEO’s $1.15 million annual salary. Nor do 10,000 shares move the needle much on Carson’s existing stake in the company, which was last reported at 238,493 shares.

All of which goes to show that despite the insider purchase, the CEO is still far from being “all in” on this stock. Before following his example, an investor should be aware of what could go wrong.

For example, although Rovi is expected to report strong earnings of $1.70 per share this year, the company is currently unprofitable over the last 12 months. Earnings expected out at the end of this month, too, will probably be down significantly from last year’s Q2. Analysts agree the company will likely report only $0.38 per share in profits for this year’s Q2, as opposed to the $0.43 earned in the year-ago quarter. Similarly, full-year profits are likely to be down year over year.

All that being said, the $1.70 that Rovi is expected to earn this year would give the stock a P/E ratio of less than 10. Relative to the company’s predicted long-term earnings growth rate of 13%, that doesn’t seem expensive. Perhaps, given the attractive valuation and the incremental positive of seeing the CEO buying, investors really should follow his example… by making an investment in Rovi — and making sure it’s a small investment — just in case.


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