CEOs and CFOs tend to have the deepest insight into their own companies’ operations. If these insiders are buying stock, investors should take note.
Here, we are going to highlight a number of insider purchases at Ratos AB (RATOB:SS). Ratos is a Swedish private equity company that owns and develops unlisted medium-sized Nordic companies. Its objectives are to contribute to the long-term and sustainable business development of the companies it invests in, and make value-generating transactions. The company is listed on the OMX Nordic Exchange Stockholm and currently has a market capitalization of SEK 10.99 billion.
Ratos: insider buying
Regulatory filings show that on 22 October the CEO of Ratos AB, Jonas Wistrom, purchased 50,000 Ratos shares at a price of SEK 31.79 per share. On the same day, the CFO, Lars Agrup, purchased 30,000 shares at a price of SEK 31.34, and four other insiders made purchases. On 23 October, the Deputy Chairman of Ratos, Jan Soederberg, purchased 200,000 shares at a price of SEK 34.97.
Source: 2iQ Research
Insider cluster buying
We see this insider buying as interesting because the number of insiders buying stock sends out a strong signal to investors that insiders believe the stock is undervalued at present. These are top-level insiders buying as well. Those closest to the company such as the CEO and CFO have access to real-time data meaning they are likely to be well informed.
The size of some of the insider purchases is also worth highlighting. The purchase by the Deputy Chairman was worth SEK 7 million (approx. $800,000). Meanwhile, the CEO’s purchase increased the size of this stake by 26%.
Strong earningsRatos posted an encouraging set of Q3 results recently. EBITDA increased by 28% in the third quarter as positive earnings momentum continued. Strong cash flow meant that leverage has fallen from 3x in Q3 2019 to 1.4x in Q3 2020. The divestment of Bisnode at a favorable price freed up capital and as a result, the re-introduction of a SEK 0.65 per share dividend was proposed by the Board.
While Ratos shares have doubled since the Covid-19 pandemic took hold in March, they have only rebounded to the level they started at in 2020. Positive earnings momentum suggests the shares could well be undervalued and insider behavior reinforces this. Recent cluster buying is signaling to investors that the current share price undervalues Ratos’ prospects.