Insider Buying

2iQ Insider Brief: Dropbox Inc (DBX:US) Lifco AB (LIFCOB:SS) H&E Equipment Services (HEES: US)

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Dropbox Inc (DBX: US)

12-month performance: +11% (IPO in March 2018 at $21)
Insider activity: Bearish
Buying pattern: Consistent selling from multiple directors including CEO, CFO, COO and Chief Accounting Officer 
Recent news: IPO lock-up expires

Dropbox Inc is a technology company that provides online file storage and collaboration services. Its Dropbox platform, which has over 500 million registered users, enables users to create, access, organise and share content without taking up space on local hard drives. The stock is listed on the NASDAQ and currently has a market capitalisation of $9.5 billion.

Dropbox shares have had a volatile run since the company’s IPO in March 2018. Listing at $21 per share, the stock immediately surged higher and rose all the way to $42 in June as investors pumped capital into the technology sector. However, since then, the shares have declined significantly after Dropbox’s IPO lock-up agreement expired in late August, COO Dennis Woodside stepped down, and shorters have increased their positions in the stock. Currently, the stock is trading at $24.30, just 11% above the IPO price. So, what is the outlook for Dropbox shares from here? Will the stock rebound or is it likely to fall further?


Source: 2iQ Research

Looking at recent insider transaction activity, the outlook for Dropbox shares does not look good, in our view. Since late August, we have seen a number of key directors offload significant amounts of stock in Dropbox, and we see this as a bearish signal. Those selling include top-level insiders such as Chairman/CEO Andrew Houston, ex-COO Woodside, CFO Ajay Vashee and Chief Accounting Officer Timothy Regan, who have all sold several tranches of stock despite the share price falling. Given this pattern of consistent selling, we believe Dropbox shares should be avoided for now. 


12-month performance: +28%
Insider activity: Bullish
Buying pattern: Buying from multiple directors including CEO
Recent news: Strong Q3 results 

Lifco AB is a Swedish investment company that is engaged in the acquisition and development of small and medium-sized niche businesses. With a long-term focus, its goal is to improve its subsidiaries’ earnings and deliver cash flows, and its portfolio currently includes around 100 companies in 30 countries. The stock is listed on the Stockholm Stock Exchange and currently has a market capitalisation of SEK 32.9 billion.

While shares in Lifco have risen around 37% year to date, the stock hasn’t escaped the recent market volatility and has fallen to SEK 374 recently, down from above SEK 400 in late September. However, Q3 results, released on 25 October, showed that the group’s financial performance has been strong recently, with Q3 net sales rising 18% and EBITA surging 29%. Looking at these numbers, could the recent share price drop have created an attractive buying opportunity?


Source: 2iQ Research

Analysing recent insider transaction activity here, we believe the outlook for Lifco shares is bullish. We say this because since the recent Q3 results, we have observed purchases from a number of top-level directors, including CEO Fredrik Karlsson, who purchased 35,000 shares, and Deputy CEO Per Waldemarsson, who acquired 3,000 shares. Clearly, these key insiders see value after the recent share price decline. As such, we think the shares have the potential to move higher.


H&E Equipment Services (HEES: US)

12-month performance: -27%
Insider activity: Bearish
Buying pattern: Consistent selling from multiple directors including CEO, CFO & COO
Recent news: Q3 profits missed expectations

H&E Equipment Services Inc is a North American integrated equipment services company that focuses on heavy construction and industrial equipment. Founded in 1961, the group is one of the largest integrated equipment companies in the US, with 89 locations across 22 states. The stock is listed on the NASDAQ and currently has a market capitalisation of $866 million.

Shares in H&E Equipment have fallen dramatically in October. Trading near $40 at the beginning of the month, the shares fell below $20 on 26 October after the company’s Q3 earnings missed expectations and were significantly below last year’s earnings. The share price decline is clearly not a good result for long-term investors. Yet could the earnings miss and subsequent share price fall have been predicted?


Source: 2iQ Research

Looking at insider transaction activity over the course of 2018, it appears that there were some warnings signs. This year, we have observed consistent selling activity from a number of key directors including CEO John Engquist, CFO Leslie Magee and President/COO Bradley Barber, which is a bearish signal. All three directors have sold large quantities of stock on multiple occasions throughout the year, which suggests the insiders were not confident in the outlook. The key takeaway for investors here is that if multiple top-level insiders are all offloading large quantities of a particular stock, caution towards that stock is warranted.

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