If a CEO is buying shares in their own company, it’s often worth investigating the stock further. CEOs tend to have an intimate understanding of their businesses and are usually way ahead of analysts when it comes to revenue and earnings trends.
In this report, we are going to highlight a large CEO purchase at Petco Health & Wellness Co (WOOF:US). Petco Health & Wellness is a pet retailer that operates in the US, Mexico, and Puerto Rico. Through its multi-channel platform, it offers pet food, supplies, and products, as well as grooming, insurance, and veterinary services. The company is listed on the NASDAQ Global Select Market and currently has a market capitalization of $6.5 billion.
Petco Health & Wellness: Insider Buying
Our insider transaction data shows that on 7 September, Petco Chairman and CEO Ron Coughlin bought 46,600 shares at a price of $21.72 per share. This purchase cost the insider approximately $1.0 million and increased his holding to 254,934 shares.
First Insider Purchase Since IPO
This purchase caught our attention due to its size. Not only is it a large purchase in nominal terms but it is also large in relative terms as it has increased the size of the insider’s holding by a significant 22%. Given the size of the trade, we see it as a high-conviction purchase.
Additionally, this purchase from the CEO is the first from an insider since the company’s IPO in January this year.
Record Revenue and Earnings
In August, Petco posted a very strong set of second-quarter results.
For the quarter, the company generated revenue of a record $1.4 billion, up 19% year on year. Meanwhile, adjusted net income came in at $67.5 million (or $0.25 per share), an increase of $44.4 million on the figure posted for Q2 2020. Free cash flow for the period increased $60.2 million to $102.5 million.
On the back of these strong results, the company raised its guidance for fiscal year 2021. It now expects to generate adjusted earnings per share of $0.81 to $0.85 versus previous guidance of $0.73 to $0.76.
"We exited Q2 with strong momentum while lapping robust double-digit comp growth. Looking ahead, we're operating from a position of strength as we move into the second half, which gave us the confidence to raise our guidance. We believe we have significant runway for continued growth as we execute against our proven transformation strategy in multi-year growth areas across services, veterinary care, digital, and owned and premium brands," said Mr. Coughlin.
In light of these strong results and the confidence from management, we see the insider buying here as a bullish indicator.