Over the last year or so Vringo (VRNG) has taken its investors on a rollercoaster ride. In just over a year it has traded between a 52 week low of $0.68 and a 52 week high of $5.73. With so much volatility and speculation as to what is going on in the patent infringement case of Vringo vs. Google (NASDAQ:GOOG), AOL (NYSE:AOL), Target (NYSE:TGT), Gannett (NYSE:GCI) and IAC/InterActive (IACI) investors have to be on their toes at all times.
Last week I posted an article titled Why Vringo Is A Strong Buy. Today I wanted to dig a little bit deeper about a topic that I briefly covered. That is the trading plans that Vringo's management team put together last summer.
All over the world insiders of companies are buying and selling their company shares. While you shouldn't base your entire investment decisions off of what insiders are doing, watching what they are doing can help provide you with a list of stock ideas worthy of further research.
Peter Lynch, has had a great track record on Wall Street. So what are his secrets to his success? Lynch said:
There's no better tip-off to the probably success of a stock than people in the company putting their own money into it. Insider selling usually means nothing, and it's silly to react to it. There are many reasons that officers might sell. They may need the money to pay their children's tuition or to buy a new house or to satisfy a debt. They may have decided to diversify into other stocks. But there's only one reason that insiders buy: They think the stock price is undervalued and will eventually go up.
Vringo's Stock Trading Plan
On August 31, 2012 Vringo issued its stock trading plan regarding the sale of shares for its insiders. Although it was a trading plan for insiders to sell their shares, it was interesting to note the way that it was planned.
In the 8-K filing it reads:
The trading plans are designed to align the interests of directors and officers with the company's investors by allowing them to monetize a portion of their equity positions when the market prices of the company common stock are between $4.25 and $30.00 per share.
Wait a minute... Did they just say between $4.25 and $30.00 per share? To make sure I wasn't dreaming or seeing things I had my wife take a look at it. Sure enough the trading plan clearly states between $4.25 and $30.00 per share. Okay, okay so they are bullish about the company, what else is new. Insiders are always excited about their company right? The real question remains why they choose those numbers.
Did they just pick them out of a hat? Probably not! But there must be a reason as to why they picked those numbers. It's interesting to note that Vringo did just have a secondary offering @ $4.35 which raised over $45 million dollars. Do they think that is the minimum price per share that their company is worth? Could be! That also would mean that their company is not worth more than $30 per share. What we can understand from this is that Vringo has a plan and they are determined to achieve it. Just look at what they (David) did to Google (Goliath). I wouldn't want to be betting against them. Just ask Google.
So what can investors take away from this trading plan? First, insiders strongly believe their stock will be trading within that ($4.25 - $30.00) range. They believe their stock is undervalued now and will only sell their shares at reasonable levels. This shows that they are confident! When management is confident then so should its shareholders. But what if the share price never hits their minimum target? Then what? Well then management would not be able to get paid. Simple as that. Now that would be pretty embarrassing don't you think? That's when you have to ask yourself, do you think they would really risk that? In my honest opinion, I think not.
Remember insiders have access to every bit of company information that you could ever want. Based on this insight, it would be tough to bet against them. After all, they know where their company is headed and what's going to happen with their company first. With a closing price of $3.32 on Friday, that means the closing price is trading around a 30% discount from the minimum selling price that insiders can sell at and over 900% from the maximum selling price.
I hope this article was helpful to you. I look forward to all of your comments and insight.
Disclosure: I am long VRNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.