CFO purchases can provide investors with powerful insider trading signals. CFOs have considerable insights into their firms’ financial health and some studies have found that these insiders earn higher abnormal returns following their purchases of company shares than CEOs.
In this report, we are going to highlight CFO purchases at Avis Budget Group Inc (CAR:US). Avis Budget Group is the parent company of Avis Car Rental, Budget Car Rental, Budget Truck Rental, and Zipcar. It is listed on the NASDAQ Global Select Market and currently has a market capitalization of $4.1 billion.
Avis Budget Group: Insider Buying
Our data shows that in the second half of February Avis Budget’s CFO Brian Choi purchased stock twice. On 19 February, the insider bought 23,735 shares at a price of $45.88. Then, on 25 February, he added another 10,000 shares at a price of $55.68. Combined, these purchases were worth a total of $1.66 million.
Large Insider Trade
This trading activity looks interesting for two reasons. Firstly, Choi – who was named CFO in August 2020 and served on the Board of Directors between 2016 and 2020 – was previously a partner at SRS Investment Management. Our records show that SRS is currently a 10% owner of Avis Budget Group. This means that Choi is not only likely to have a good understanding of the group's recent performance, but he is also likely to have an excellent understanding of the stock’s true value.
Secondly, Choi has spent a substantial amount of money on Avis Budget stock. This suggests that he is confident the stock is undervalued at present.
Positioned for the Travel Recovery
While Avis Budget has been impacted significantly by travel restrictions over the last year, the company looks well positioned for the future.
Recently, the group advised that it has reduced its cost base substantially, removing more than $500 million of costs in the fourth quarter of 2020, and more than $2.5 billion of costs for 2020. It also advised that its liquidity position was $1.3 billion at the end of 2020 and that it is a strong position to fund the purchase of its 2021 fleet. Encouragingly, the company managed to generate positive adjusted EBITDA of $74 million in Q4, despite the fact that revenue was down 37% year on year.
Of course, the group still faces plenty of uncertainty in relation to Covid-19. However, it has said that it remains optimistic about the factors that it can control and that its recent actions position it to be structurally more profitable when travel demand normalizes.
Putting this all together, we see the insider buying here from the CFO as a bullish signal.