The stock market is flooded with data and it can be unnerving for retail investors to analyze and make sense of. For those looking for clues on which stocks to consider, tracking insider trading could be beneficial.
Corporate Insiders – including CEOs, CFOs, COOs, or other officers, directors, or a person or entity owning more than 10% of a company’s shares, are required to disclose their stakes, transactions, and any changes in ownership to the SEC (Securities Exchange Commission). However, going through multiple SEC filings of thousands of companies can be a daunting task.
TipRanks helps investors in this regard through its Insiders’ Hot Stocks and Daily Insider Transactions tools. These tools track the activities of corporate insiders and can help investors make better investment decisions.
We used these tools to look at two stocks that have recently witnessed notable insider trading activity.
Carvana (NASDAQ: CVNA)
Used car online dealer Carvana disappointed investors with its dismal Q122 earnings and then announced a series of financial offerings, which raised concerns about the financial health of the company and led to a sharp decline in the stock.
Carvana’s Q122 revenue grew 56% year-over-year to $3.5 billion, surpassing the consensus estimate of $3.39 billion. However, the net loss per share widened considerably to $2.89 from $0.46 in Q121 and was worse than the Street’s loss per share estimate of $1.42.
Carvana cited multiple reasons for its weak performance, including the impact of higher used car prices on customer affordability, higher interest rates, surging fuel costs, inflation, and the impact of Omicron on its logistics network.
Along with its earnings, Carvana announced Class A common stock and preferred stock offering of $1 billion each. What’s worth noting is that the company mentioned that its CEO Ernie Garcia, III, along with his father Ernest Garcia, II, and entities controlled by one or both of them have “indicated an interest in purchasing up to an aggregate of $432 million” of the common stock offering.
Carvana later increased the offer to 15,625,000 Class A shares at $80 per share and stated that the CEO, along with his father and entities controlled by one or both of them, will purchase 5.4 million shares. Carvana also announced a $2.275 billion unsecured debt offering (upsized later to $3.275 billion) to fund its Adesa acquisition.
In an SEC filing, Ernest Garcia, II, along with related entities (10%+ owners), disclosed the purchase of 5.1 million shares at $80 per share on April 26, for an aggregate amount of $408 million. This “Informative Buy” transaction indicates that the insiders made the purchase with their own capital, which generally reflects greater confidence in the company’s prospects.
Evercore ISI analyst Michael Montani, who had upgraded Carvana stock in February, downgraded it from a Buy to a Hold and slashed his price target to $110 from $155 due to “lack of visibility on expenses, incremental capital raise, and ongoing auto shortage demands headwinds.”
However, Stifel Nicolaus analyst Scott Devitt feels that reports about Carvana’s doom seem “Greatly Exaggerated.” While the analyst acknowledges challenging near-term trends, he believes that the long-term thesis remains intact “as the company continues to capture market share and develop the assets needed to realize significant leverage at scale.”
Devitt reiterated a Buy rating but lowered the price target to $140 from $170.
Overall, the Street is cautiously optimistic, with a Moderate Buy consensus rating based on 11 Buys and nine Holds. Given the over 71% year-to-date decline in the share price, the average Carvana price target of $150.89 implies 129.53% upside potential from current levels.
Despite the notable recent Informative Buys, TipRanks’ Insider Confidence Signal is Negative on Carvana, due to multiple Informative Sell transactions made by insiders in the last three months.
FIGS, Inc. (NYSE: FIGS)
Next up is FIGS, a direct-to-consumer healthcare apparel and lifestyle brand known for its comfortable and stylized scrubs.
Last month, FIGS reported better-than-anticipated Q421 results and issued an upbeat outlook. Q421 revenue grew 43% to about $129 million, and adjusted EPS grew 12.5% to $0.09. The company expects revenue between $550 million-$560 million in 2022, up from $419.6 million in 2021.
FIGS ended Q421 with 1.9 million active customers, up 46% year-over-year. What’s more, the company is experiencing greater customer loyalty, with repeat purchases increasing to 68% in 2021, up from 62% in 2020.
Figs shares have been quite volatile and are down about 43% year-to-date. Billionaire Thomas Tull, a 10%+ owner, saw this pullback as a buying opportunity. He recently purchased 29,185 shares at $17.13 per share, making an “Informative Buy” worth nearly $0.5 million. Earlier this month, Tull bought 79,150 shares for $1.75 million.
Looks like Truist analyst Beth Reed shares Tull’s optimism about FIGS. The analyst recently initiated coverage of FIGS with a Buy rating and a price target of $32. Reed believes that the company has the ability to meet its goal of generating over $1 billion in revenue by 2025, backed by a growing market share and the creation of complementary lifestyle product offerings customized specifically for healthcare professionals.
Reed noted that though the stock has been volatile, the company’s fundamentals remain solid. The analyst believes that FIGS should be able to generate industry-leading gross margins over the medium term.
The majority of analysts agree with both the insiders and Reed, with the stock scoring a Strong Buy consensus rating based on seven Buys and two Holds. The average FIGS price target of $31 implies upside potential of 96.33% from current levels.
Overall, TipRanks’ Insider Confidence Signal is Positive for FIGS, with corporate insiders buying shares worth $7.3 million in the past three months.
Conclusion
Tracking insiders’ transactions give investors a good idea about a company’s prospects. While it should not be the only criteria for making an investment decision, it certainly is useful to keep a tab on the trading activities of insiders, who often have more insights about the company than the common public.
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