Insider ownership can reveal a whole lot about management's perspective of the value of its company, and so can insider buying when times are getting rough. When a stock goes south, what does management do? Is management just sitting on the sidelines? Or is management buying, and thereby signaling to the market that it believes the company's stock is undervalued?
Without a doubt, shareholders have a strong interest in management taking as big a stake as possible in the company they have invested in: If management does a good job, everybody wins. If management fails, at least they are eating their own lunch, too.
A case in point is Prospect Capital Corp. (NASDAQ:PSEC), whose management team has doubled down on its stock again in February. It is easily understandable why management decided to go on a shopping spree in the new year: Prospect Capital's shares have fallen to a new 52-week low in early February, but have since recovered most of their year-to-date losses.
In the last two weeks, Prospect Capital's Chief Executive Officer, John Barry, and Chief Operating Officer, Grier Eliasek, bought PSEC stock in the open market, and have made yet another serious commitment to the business development company.
Prospect Capital's management has executed the following trades:
- Chief Executive Officer John Barry bought 1,060,000 shares on February 11, 1,058,000 shares on February 12, 1,115,000 shares on February 16, 1,109,000 shares on February 17, and 1,114,000 shares on February 18. Transaction prices ranged from $5.702 to $6.772. Barry now has a grip on ~18.7 million Prospect Capital shares valued at ~$129.8 million, based on Monday's closing price of $6.95. Barry has substantial skin in the game, as it is called.
- Chief Operating Officer Grier Eliasek also doubled down on Prospect Capital in the last two weeks: He bought 15,000 shares on each day on February 11, 12, 16, and 17. Prices ranged from $5.70 to $6.69. Eliasek now owns 687,195 shares valued at ~$4.8 million.
If you look at the different transaction volumes of Mr. Barry and Mr. Eliasek, one could almost feel a little bit sorry for Mr. Eliasek, who just does not appear to be able to hold a candle to Barry's aggressive buying.
The latest batch of transactions comes after significant insider buying was revealed at the end of last year. Prospect Capital's usual suspects loaded up the truck just when PSEC crashed into the mid-$6 price range. The scale of insider buying in February is, without a doubt, a positive for existing shareholders and a vote of confidence in the company.
Insiders have been getting real greedy again in February, and it was a good kind of greed. Prospect Capital's Chief Executive Officer John Barry took the lead once again, gobbling up ~5.5 million shares at a deep discount to accounting book value. Grier Eliasek also continued buying after the earnings release, but at a much lower pace than Barry. The recent insider buying is a sign that management believes its stock is heavily discounted - a thing I have continuously pointed out over the last six months. Accounting for the latest transactions, John Barry has amassed an ~18.7 million stake in Prospect Capital that is worth a whopping $130 million. That's not peanuts, and may very well show investors the way. Buy for income.
Disclosure: I am/we are long PSEC.
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.