During a highly volatile week for markets, we saw insiders step up and purchase shares, although in aggregate it looked like both insider buying and selling declined compared to the prior week. The dip had to do with large purchases of Carvana CVNA in a secondary offering the prior week and large sales of Tesla (TSLA) by Elon Musk to fund the purchase of Twitter (TWTR) as discussed last week.
Once you adjust for both those unusual transactions, insider buying went up last week while insider selling edged up a little. I am not a fan of “adjusted EBITDA” numbers reported by most companies these days but sometimes you do have to adjust the numbers for extreme outlier events like the Tesla sales. Otherwise you end up drawing wrong conclusions like this opinion piece by Mark Hulbert. With earnings season waning and a market decline that has seen some companies drop 80% or 90% from their peaks, I would not be surprised to see insider buying pick up pace in the coming days. Some market participants are seeing the action last week as signs of capitulation but if this is anything like the bear market after the dot com bubble burst, we have a ways to go before the market stabilizes.
It behooves us to remember that insiders are usually early and that their time horizons may not match ours. I discussed this in one of two Twitter threads that discusses signals and noise as it relates to insider transactions last week.
- Introduction to insider transactions and “signaling” by company insiders
- Strategies to benefit from insider purchases
B. Riley (RILY) topped our list once again after a cluster of six insiders purchased shares. We have written about B. Riley several times over the years and it remains a top 3 position for me in my personal portfolio despite the recent pull back in the stock. A drop in its cyclical businesses like investment banking and its exposure to a portfolio of public securities hurt the company but it also has operating businesses and counter-cyclical businesses like a restructuring division that should help the company during this challenging environment.
I got interested in B. Riley after a series of insider purchases by founder Bryant Riley and other insiders in 2020. We featured the company as a spotlight idea in our September 2020 special situations newsletter and wrote the following about the company when it was trading for a bargain basement price of $26.78 (unadjusted for special or regular dividends),
B. Riley is a financial services firm that kept showing up on my radar multiple times over the years either because it was acquiring public companies, was buying back its own stock or because multiple insiders were buying the stock. I started digging into the company and its myriad lines of businesses and the more I looked into it, the more I liked what I saw.
The company was founded in 1997 as a boutique research firm focused on small-cap stocks. The company went public in 2014 by merging with the publicly traded financial advisory firm Great American Group. The stock has appreciated 232% since that merger was consummated on June 18, 2014. This compares with a gain of 32% in the Russell 2000 index over the same period.
The company provides investment banking services, wealth management services (over $10 billion in assets under management), appraisals, specialty financial advisory services and retail liquidation services in addition to owning certain companies outright.
Their advisory services businesses combined with their recent penchant to acquire brands or companies outright makes me think of B. Riley as a baby Berkshire Hathaway. The siren call of discovering the next Berkshire Hathaway or the next Warren Buffett has lead many investors astray and the investment landscape is littered with the ghosts of Eddie Lampert, Sardar Biglari, Prem Watsa, etc. That said, the more I looked into B. Riley, the more intrigued I was by the company. While the stock has appreciated handsomely from its March lows, the enterprise value of the company is just $752.27 million (market cap of $684.17 million, plus $55.6 million of preferred shares and $12.5 million of net debt) and I expect years of growth from the company as it navigates a potentially challenging macroeconomic landscape.
B. Riley History (company August 2021 investor presentation)
The other interesting insider purchase was of the manufacturer of the Invisalign system, Align Technology (ALGN) by its CEO Joseph Hogan. There have been very few insider purchases of Align but Mr. Hogan’s timing both with buying and selling has been impeccable. He last purchased $1 million worth of shares in August 2019 at an average price just below $200. He also sold $46.64 million worth of shares at an average price of $699.54 in August 2021. This was an opportunistic sale unrelated to any option exercises as you can see here.
CEO Joseph Hogan’s Align Transactions (InsideArbitrage)
Welcome to edition 618 of Insider Weekends. Insider buying decreased last week with insiders purchasing $176.54 million of stock compared to $462.93 million in the week prior. Selling also decreased significantly to $488.72 million compared to $8.98 billion in the week prior.
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 2.77. In other words, insiders sold almost 3 times as much stock as they purchased. The Sell/Buy ratio this week was favorable compared to the prior week when the ratio stood at 19.39.
Notable Insider Buys:
1. B. Riley Financial, Inc. RILY: $51.02
Shares of B. Riley Financial were acquired by 6 insiders:
- Chairman and Co-CEO Bryant R. Riley acquired 241,343 shares, paying $47.23 per share for a total amount of $11.39 million. Mr. Riley increased his stake by 4.42% to 5,698,313 shares with this purchase.
- Director Randall E. Paulson acquired 30,000 shares, paying $46.84 per share for a total amount of $1.41 million. Mr. Paulson increased his stake by 19.43% to 184,417 shares with this purchase.
- Director Robert L. Antin acquired 10,000 shares, paying $45.53 per share for a total amount of $455,300. Mr. Antin increased his stake by 71.39% to 24,008 shares with this purchase.
- Director Michael Joseph Sheldon acquired 10,000 shares, paying $47.68 per share for a total amount of $476,792. Mr. Sheldon increased his stake by 30.15% to 43,164 shares with this purchase.
- CEO B. Riley Securities, Inc. Andrew Moore acquired 10,000 shares, paying $45.94 per share for a total amount of $459,377. Mr. Moore increased his stake by 4.26% to 244,758 shares with this purchase.
- President Kenneth M. Young acquired 2,500 shares, paying $46.69 per share for a total amount of $116,734. These shares were purchased indirectly through a trust.
P/E: 3.38 Forward P/E: N/A Industry P/E: 12.58 P/S: 0.89 Price/Book: 2.18 EV/EBITDA: N/A Market Cap: $1.42B Avg. Daily Volume: 288,958 52 Week Range: $45.04 – $91.24
2. General Electric Company GE: $78.23
Shares of General Electric were acquired by 3 insiders:
- Chairman and CEO Lawrence H. Culp Jr. acquired 65,000 shares, paying $74.53 per share for a total amount of $4.84 million. These shares were purchased indirectly by a holding company.
- Senior Vice President Scott Strazik acquired 3,737 shares, paying $74.23 per share for a total amount of $277,380. Mr. Strazik increased his stake by 31.41% to 15,634 shares with this purchase. 1,237 of these shares were purchased indirectly through a 401(K) plan.
- Senior Vice President John S. Slattery acquired 3,601 shares, paying $75.00 per share for a total amount of $270,075.
P/E: N/A Forward P/E: 16.16 Industry P/E: 21.27 P/S: 1.16 Price/Book: 2.21 EV/EBITDA: 14.36 Market Cap: $86.1B Avg. Daily Volume: 6,969,269 52 Week Range: $72.61 – $116.17
3. Keurig Dr Pepper Inc. KDP: $36.96
Shares of this beverage company were acquired by 2 insiders:
- Chief Strategy Officer Justin Whitmore acquired 65,611 shares, paying $37.51 per share for a total amount of $2.46 million. Mr. Whitmore increased his stake by 66.97% to 163,587 shares with this purchase.
- Chief Legal Officer Anthony Shoemaker acquired 10,000 shares, paying $36.42 per share for a total amount of $364,150. Mr. Shoemaker increased his stake by 26.32% to 48,000 shares with this purchase.
P/E: 22 Forward P/E: 20.09 Industry P/E: 23.72 P/S: 4.08 Price/Book: 2.06 EV/EBITDA: 17.37 Market Cap: $52.43B Avg. Daily Volume: 6,446,148 52 Week Range: $32.44 – $39.35
4. NexPoint Diversified Real Estate Trust NXDT: $15.49
President and Principal Executive Officer James D. Dondero acquired 142,123 shares of this asset management company, paying $15.74 per share for a total amount of $2.24 million. These shares were purchased indirectly through a trust.
P/E: N/A Forward P/E: N/A Industry P/E: N/A P/S: N/A Price/Book: N/A EV/EBITDA: N/A Market Cap: $574.84M Avg. Daily Volume: 118,669 52 Week Range: $11.53 – $16.15
5. Align Technology, Inc. ALGN: $280.41
President and CEO Joseph M. Hogan acquired 6,700 shares of this medical devices company, paying $298.48 per share for a total amount of $1.99 million. Mr. Hogan increased his stake by 3.99% to 174,801 shares with this purchase.
P/E: 31.57 Forward P/E: 22.04 Industry P/E: 45.63 P/S: 5.48 Price/Book: 6.02 EV/EBITDA: 20.69 Market Cap: $22.1B Avg. Daily Volume: 910,040 52 Week Range: $270.37 – $737.45
You can view the full list of purchases from this Insider Buying page.
Notable Insider Sales:
1. Cadence Design Systems, Inc. CDNS: $146.37
Shares of this software application company were sold by 2 insiders:
- Director Lip-Bu Tan sold 70,000 shares for $152.30, generating $10.66 million from the sale. These shares were sold indirectly through a trust.
- Director James D. Plummer sold 33,000 shares for $155.95, generating $5.15 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
P/E: 54.64 Forward P/E: 33.04 Industry P/E: 50.31 P/S: 12.8 Price/Book: 14.62 EV/EBITDA: 39.46 Market Cap: $40.36B Avg. Daily Volume: 1,843,867 52 Week Range: $118.11 – $192.7
2. Equinix, Inc. EQIX: $713.44
Shares of this digital infrastructure company were sold by 2 insiders:
- CEO and President Charles J. Meyers sold 12,244 shares for $711.91, generating $8.72 million from the sale.
- Chief Legal and HR Officer Brandi Galvin Morandi sold 1,000 shares for $752.58, generating $752,578 from the sale.
P/E: 131.75 Forward P/E: 78.31 Industry P/E: 30.74 P/S: 10.15 Price/Book: 5.93 EV/EBITDA: 32.56 Market Cap: $64.94B Avg. Daily Volume: 449,137 52 Week Range: $662.26 – $885.26
3. Shutterstock, Inc. SSTK: $66.21
Executive Chairman & Interim CEO Jonathan Oringer sold 130,000 shares of Shutterstock for $69.62, generating $9.05 million from the sale.
P/E: 27.82 Forward P/E: 16.39 Industry P/E: 44.09 P/S: 3.04 Price/Book: 5.38 EV/EBITDA: 19.09 Market Cap: $2.4B Avg. Daily Volume: 331,579 52 Week Range: $65 – $128.36
4. Abbott Laboratories ABT: $112.27
Shares of this health care products company were sold by 2 insiders:
- Director Daniel J. Starks sold 50,000 shares for $113.22, generating $5.66 million from the sale.
- Senior Vice President Randel William Woodgrift sold 24,000 shares for $113.00, generating $2.71 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
P/E: 26.06 Forward P/E: 22.82 Industry P/E: 44.80 P/S: 4.45 Price/Book: 5.53 EV/EBITDA: 15.51 Market Cap: $197.99B Avg. Daily Volume: 5,413,659 52 Week Range: $105.36 – $142.6
5. Morningstar, Inc. MORN: $246.08
Executive Chairman Joseph D. Mansueto sold 31,416 shares of this independent investment research services provider for $255.18, generating $8.02 million from the sale.
P/E: 58.04 Forward P/E: 86.65 Industry P/E: 12.58 P/S: 5.96 Price/Book: 7.83 EV/EBITDA: 30.18 Market Cap: $10.52B Avg. Daily Volume: 149,772 52 Week Range: $229.33 – $350.21
You can view the full list of sales from this Insider Sales page.
Disclaimer: I hold a long position in B. Riley (RILY). 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.
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