When corporate executives, board members, and controlling shareholders trade a stock, it can have a major impact on the stock’s performance. Not only can certain high-volume trades themselves move a stock, but investors’ follow-on trades can accelerate the stock’s direction.
But are there certain types of insider trades that an investor should be looking for? While all such transactions provide valuable insight, size and frequency often carry more weight in the market.
In the latter case, an insider that repeatedly buys or sells a stock over a matter of days or weeks sends a powerful signal of sustained conviction. Let’s look at three examples where insiders have gone on a buying or selling spree over the last few months—and what investors should take away from the activity.
Will Insider Selling Impact Carvana’s Stock Price?
In the past 90 days, major Carvana (NYSE: CVNA) shareholder Ernest Garcia II executed 28 sell orders. In total, he has sold more than 1.2 million shares of the online used car retailer worth nearly $360 million.
Mr. Garcia’s son, Ernest Garcia III, started building Carvana in 2012 as a subsidiary of his father’s rental car chain DriveTime Automotive. Carvana later spun-off from DriveTime and the e-commerce platform is now commonly referred to as “the Amazon of cars”.
Although Ernest Garcia II doesn’t sit on Carvana’s board he has provided at least $100 million of funding and has significant voting power as a controlling shareholder. His most recent sells of July 22nd were completed at an average price of $334.90 which is near the stock’s all-time high.
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Carvana has since trended higher and with Mr. Garcia still holding more than 40 million shares, expect the trimming of his position to continue—but have little impact on the stock’s powerful performance. With Carvana benefitting from a strong interest in its platform in a tight used car supply market, traffic to the website and the company’s financial performance should remain elevated.
Does Recent Insider Buying Suggest R.R. Donnelley Stock is a Buy?
R.R. Donnelley & Sons (NYSE:RRD) is another stock that has been the subject of some frequent insider activity. In this case, there has been a repeated pattern of buying.
Chatham Asset Management, a New Jersey-based investment advisor, is a major shareholder of the marketing communications company. On 14 occasions in the last three months, it has purchased R.R. Donnelley shares worth approximately $14.5 million.
The major shareholder has been buying the stock at relatively depressed levels implying that it is an attractive value play. In recent years, the company has struggled to keep up with the digital transformation underway in the media and marketing industries. Yet it is in the process of reinventing itself by offering new technology-enabled products and services to a broader range of customers in the financial, grocery, healthcare, legal, restaurant, retail, and hospitality industries.
Chatham Asset Management appears to be betting that the strategy will lead to a turnaround and better financial performances. The market will get an update on R.R. Donnelley’s progress when it reports second-quarter results on August 2nd. Trading volume has been picking up in recent months largely due to Chatham, so investors may not want to wait too long to jump on this potential comeback story.
Will Ontrak Stock Ever Get Back on Track?
Back to the bearish side of the ledger, Ontrak (NASDAQ: OTRK) has faced heavy selling pressure from board chairman Terren Peizer. In the last 90 days, he has placed 28 sell transactions trailing only Facebook CEO Mark Zuckerberg and Texas Pacific Land board member Murray Stahl on the most active insiders leaderboard.
Mr. Peizer’s sale of almost 400,000 Ontrak shares worth over $12.6 million has come at a time when the medical care company’s share price is reeling from a precipitous fall. The stock rose to nearly $100 in January 2021 but was back down to the $30 level on March 1st following news that Ontrak was losing its largest customer.
Ontrak, a specialist in chronic disease management, had previously put together some solid financial results but the loss of its top customer sent many investors heading for the exits. The company noted that it had a strategy to win back the business which at the time was estimated to account for roughly one-third of its overall sales.
However, absent any positive developments on this front, the stock price has gone sideways in recent months. It hasn’t helped that its chairman has been among the biggest sellers. Mr. Peizer has repeatedly dumped 11,000 or more shares as part of a periodic trading plan which began May 10th.
Whether Ontrak can recover from the recent disappointment and gain share in its estimated $30 billion addressable market remains to be seen. With the closely held small-cap stock having a 54% insider ownership percentage, what’s more, certain is that insider trading will largely dictate where it goes from here.
Ontrak is scheduled to report second-quarter results next week. Investors intrigued by this often reverse-split stock may want to listen to the conference call to get a read on management’s tone about the company’s long-term growth prospects—and the potential for more insider trading.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Ontrak (OTRK) | $1.44 | -1.4% | N/A | -0.14 | Buy | $45.00 |
| Carvana (CVNA) | $224.46 | +0.7% | N/A | 22,468.47 | Hold | $222.71 |
| R. R. Donnelley & Sons (RRD) | $10.84 | flat | N/A | 271.00 | N/A | N/A |
