- Recent buying represents a significant reversal of insider opinion.
- Insider signal only meets the threshold of significance, however.
- We think it prudent to wait until fundamentals confirm insider optimism.
On the positive side, the most recent form 4 filings for CLNE round out a larger insider buying cluster at the firm. Six executives and Directors have invested a combined $444,950 in Clean Energy's shares since they hit the skids yet again in late February after releasing disappointing Q4 financials.
This marks a significant reversal of insider opinion for this operator of natural gas filling stations. As you can see on our sample InsiderInsights profile of CLNE, the stock had a conflicted signal from the executive suite in the second half of 2013, with insiders both buying and selling. Prior to that, Clean Energy had a significantly bearish insider profile for several years.
Insiders have helped us make good money betting on the future of natural gas. Significant insider purchases at Westport Innovations (NASDAQ:WPRT) scored us a more than 100% gain between February 2010 and October 2012. We then consciously swapped WPRT for insider-bought Fuel Systems (NASDAQ:FSYS), and made over 40% in less than a year before that weakening stock was stopped out of our portfolio in October 2013.
During these years, we also constantly saw Clean Energy's Chairman, Andrew Littlefair, doing the rounds in the financial press talking nice about his company. But we also saw that he was a chronic seller of his own shares. The disconnect between Mr. Littlefair's words and actions made avoiding the poor investment CLNE has obviously proven to be... easily avoidable.
So what about now? Now that Clean Energy's recent cluster of insider buys have finally scored CLNE a significantly bullish +1 InsiderInsights Company Rating? Well, since we use insider data as a first screen to determine where we focus our fundamental analysis, the insider signal has earned Clean Energy some attention from us. But we still think there are better insider-bought nat gas-related plays to be bought in the form of the numerous E&P and MLP plays that already overweight the recommended list of our newsletter.
From a pure insider point of view, the insider profile of CLNE shows that the track records of the insiders purchasing are not particularly good. So while the fact of the buying cluster has earned CLNE a significantly bullish rating, it is not the strongest insider rating we award. Even Director Vincent Taormina, the one recent insider buyer that has averaged a 36% return in CLNE with his prior purchases, has a bit of an asterisk in his history.
Notice at the bottom of our insider profile of CLNE, we've also included the full Scorecard for Mr. Taormina. While the "mean" return of his past purchases after a year is positive 36%, his "hit rate" is only 25% (meaning the stock only went up 25% of the time), and his "median" return is actually negative 11%! His is a seriously skewed statistical track record where one big winning buy offset three losers. This illustrates well that investors should not rely on the simple insider scores that (literally) litter the Internet based on average returns alone.
Our experience following these "crash and buy" insider signals is that they often spur a quick rebound in the plunging stock. But the bounce often proves short-lived as investors realize that the fundamental reasons the stock came down to begin with take a quarter or more to fix.
We think the odds that this will prove the case with CLNE after its recent bounce are uncomfortably high, and that investors are at least as likely to have a chance to buy in later at a price at or below where the recent insider buying sparked interest.
So while the insider buying at Clean Energy has put CLNE on our watch list, it is not yet on our buy list. Especially since insiders have already made us spoiled for choices for other natural gas plays with better risk/reward profiles (see our recent column on Western Gas (NYSE:WES) for one such alternative).
Disclosure: I am long WES. 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.