There are two main reasons why an insider invests in their own company. The first being that they believe business is set to improve and the second is that they believe the market undervalues the company. The underlying reason for an insider buying stock is always the same, they expect the share price will go up.
Here, we are going to highlight a large insider purchase at Sonos Inc (SONO:US). Sonos designs, develops, manufactures, and sells multi-room audio products in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company provides wireless speakers, home theater speakers, components, and accessories. It’s traded on the NASDAQ stock exchange and currently has a market capitalization of $4.8 billion.
Sonos Inc: Insider Buying
Form 4 filings show that on 19 February a Director of Sonos, Michelangelo Volpi, purchased 53,666 SONO shares at a price of $37.35 per share, for his family trust. This purchase cost the insider $2 million and raised his holding significantly as he only held 108 SONO shares before this purchase.
Volpi is an experienced businessman and venture capitalist. He is currently on the board of Aurora, Cockroach Labs, Confluent, Covariant.ai, Elastic, Kong, Starburst and Wealthfront as well as Sonos. He co-founded Index Ventures’ San Francisco office which is significant as Index Ventures is a 10% shareholder in Sonos. This means he is likely to know Sonos intimately.
It’s worth pointing out that this is a substantial purchase by the insider in monetary terms. This suggests he is extremely confident in Sonos’ prospects going forward.
Sonos has seen its share price rise by over 200% over the last 12 months due to high demand for its products. Q1 results were very strong. Revenue in the first quarter was up 15% year on year at $645.6 million. Adjusted EBITDA grew 78% year on year to $166.3 million, due to increased demand and margin improvements. Gross margin was up to a record 46.4% which was +590 basis points year on year. Cash and cash equivalents stood at a healthy $678 million.
Full-year 2021 guidance was raised. EBITDA expectations were raised significantly from a range of $170 million to $205 million to a range of $195 million to $225 million.
“We are extremely well positioned to deliver solid adjusted EBITDA margin expansion, industry-leading gross margins, strong revenue growth, significant free cash flow and increased shareholder value over time. The future has never been brighter for Sonos,” commented CEO Patrick Spence.
On the back of these encouraging Q1 results and improved 2021 outlook, we see the insider buying here as bullish. It would signal that the insider believes there is further upside in the share price to come.