CFO purchases are often very bullish insider transactions. CFOs are top-level insiders and they tend to have a very good read on their firms’ financials.
In this report, we are going to highlight some CFO trading activity at Forestar Group Inc (FOR:US). Forestar is a residential real estate company that operates in 22 US states. The company is a majority-owned subsidiary of D.R. Horton – the largest homebuilder by volume in the US. It is listed on the New York Stock Exchange and currently has a market capitalization of $1.02 billion.
Forestar Group: Insider Buying
Our records show that in late June, Forestar CFO James Allen purchased stock twice. On 25 June, the insider bought 1,800 shares at a price of $20.77. Then, on 28 June, he added another 1,800 shares at a price of $20.53. In total, the insider spent about $75,000 on stock.
While these insider purchases are not large in nominal terms, they are large in relative terms. As a result of these two trades, Mr. Allen’s holding has increased to 9,679 shares from 6,079 shares. That represents an increase of 59%. This large increase suggests that the insider is very confident that Forestar stock is set to move higher.
It’s worth noting that Mr. Allen has made well-timed purchases in the past. His last purchase was in June 2020 when he bought 5,200 shares at a price of $14.41 per share. Since then, the stock has risen 42%. Our model gives the insider a high long-term Trading IQ of 116.
Well Positioned for Growth
Forestar Group’s most recent quarterly results, for the three months to the end of March, were very strong. During the quarter, the company sold 3,588 residential lots, which represented growth of 84% year on year. Revenue for the quarter increased 80% to $287.1 million while net income came in at $28.4 million, up 196% year on year.
Looking ahead, Forestar said that it is well positioned to execute its growth plan due to its low net leverage and strong liquidity, its low overhead model, and its strategic relationship with D.R. Horton. The company said that housing market conditions remain favorable across the country, and that it now expects to deliver between 14,500 and 15,000 lots in fiscal 2021 as it continues to consolidate market share.
“We expect continued robust growth and increasing profitability and returns in the coming years," commented Chairman Donald J. Tomnitz.
In light of these results and the outlook, we see the insider buying from the CFO here as a bullish indicator.