‘Cluster buying’ is a particularly strong insider buying signal. This is where multiple insiders are purchasing company stock within a short space of time. If multiple insiders have the confidence to purchase stock, it’s a strong indication that the stock is undervalued.
With that in mind, today we are going to highlight a recent pattern of cluster buying at Colony Capital Inc (CLNY:US). Colony Capital is a leading global digital infrastructure, real estate, and investment management firm that creates long-term value by identifying and capitalising on differentiated investment opportunities. Operating across 20 global locations, the company manages assets of approximately $46 billion. It is listed on the New York Stock Exchange and currently has a market capitalisation of $1.4 billion.
Between 11 August and 17 August, a number of insiders at Colony Capital purchased shares in the company. Combined, these insiders spent approximately $580,000 on CLNY stock in less than a week. The insider transactions are listed below:
- 11 August: CFO Jacky Wu purchased 20,000 shares @ $2.48 per share
- 12 August: Chief Legal Officer Ronald Sanders purchased 75,000 shares @ $2.57 per share
- 14 August: President/CEO Marc Ganzi purchased 100,000 shares @ $2.70 per share
- 17 August: COO Mark Hedstrom purchased 25,000 shares @ $2.80 per share
Source: 2iQ Research
This pattern of insider buying looks interesting for a number of reasons. Firstly, these are top-level insiders buying. The CEO, CFO, and COO are all likely to have an excellent understanding of the company’s inner workings and future prospects.
Secondly, the CEO’s purchase is large on a relative basis. This purchase of 100,000 shares has more than tripled his holding, from 48,889 shares to 148,889 shares. This suggests that he is confident about the future.
Colony Capital’s recent second-quarter results, issued on 7 August, showed that the company has been impacted by Covid-19. For the quarter, total revenue came in at $372 million, down from $573 million for the same period last year.
However, there were some positives in the Q2 results. Not only did the company state that digital fee-earning equity under management (FEEUM) was up 22% for the year, well ahead of its 15% growth target for 2020, but it also said that it had taken a series of decisive steps to solidify its liquidity position and that near-term debt maturities had been dealt with.
“Despite an adverse environment created by the Covid-19 pandemic, these developments position us to preserve value at our legacy assets, make significant progress on our digital transformation, and accelerate our alignment with the powerful secular tailwinds driving growth in digital infrastructure,” said President and CEO Marc Ganzi.
All things considered, we see the recent insider buying here as a bullish signal. The insider purchases suggest that insiders are confident that Colony Capital can rebound from Covid-19 and that they believe the stock is currently undervalued.