If multiple insiders are buying stock within a short period of time investors should take note. This buying pattern – which is referred to as ‘cluster buying’ – is a particularly strong insider signal.
With that in mind, today we are going to highlight some recent cluster buying at SmileDirectClub Inc (SDC:US). SmileDirectClub is a teledentistry company that helps people achieve straighter, whiter teeth. The company is listed on the NASDAQ Global Select Market and currently has a market capitalization of $3.7 billion.
Form 4 filings show that a number of insiders at SmileDirectClub have purchased stock since 31 August. Those buying have included:
CEO and Chairman David Katzman (1.278 million shares @ $8.07 per share)
Founder Jordan Katzman (663,130 shares @ $8.05 per share)
CFO Kyle Wailes (20,000 shares @ $7.69 per share)
Director Richard Wallman (15,000 shares @ $8.51 per share)
Source: 2iQ Research
This cluster buying stands out to us for a few reasons. Firstly, these are top-level insiders buying stock. They are likely to have an excellent understanding of both the group’s recent performance and its future potential.
Secondly, the purchases are substantial. Combined, the insiders spent just under $16 million on SmileDirectClub stock in the space of just a few days. Third, our Insider Model rates this buying activity as very bullish.
Progress towards growth initiatives
SmileDirectClub’s Q2 results, issued on 12 August, showed that the company continues to make progress towards its goals. While revenue fell to $107 million from $197 million in Q1, adjusted EBITDA came in at $(20) million, an improvement on last quarter’s figure of $(67) million. “In the quarter, we made great progress against our growth initiatives, and remain on track to achieve our Q4 Adjusted EBITDA profitability target, positioning us well to continue to gain share in this massively under-served market,” said CEO David Katzman.
All things considered, we see the insider buying here as a bullish signal. The large purchases suggest that insiders are confident about the future.