There are many metrics that attempt to quantify a company's future prospects, but few speak as loudly as the confidence of its leaders. That's where insider buying takes center stage – a quantifiable measure that shines a light on the perspective of top company executives and major shareholders. When members of this group put their own money on the line by purchasing company stock, it sends a powerful message: they believe in the future of the company, and they're willing to bet on it.
But who are these "insiders"? The term encompasses a crucial group: the C-suite (CEO, CFO, COO, CAO, and more), board members, and any shareholder with a stake of 10% or more. These individuals are directly responsible for steering the company towards success, and they're generally regarded as having a deeper level of insight than the average investor regarding future challenges, opportunities, and strategies.
That's why the insider buying on the two stocks featured here is so notable, as both names have underperformed the market by a wide margin in 2023. Here's a look at who's been scooping up shares of Chewy (CHWY) and Planet Fitness (PLNT).
Chewy Director Drops $550K on Shares
Chewy is a leading online retailer of pet food and supplies. They offer a vast selection of products (think food, treats, toys, medication, and accessories) for dogs, cats, fish, small pets, and birds. Their strengths lie in personalized service, competitive prices, fast and free shipping, and convenient subscription options like Autoship. The Florida-based company currently commands a market cap of $10.21 billion.
In 2023, Chewy stock has lost one-third of its value, lagging the broader market by a wide margin.
Chewy board member James Star thinks the stock is a good value at current levels, as the executive chairman of Longview Asset Management just picked up CHWY shares worth over half a million dollars. The transactions were made on Dec. 12 and Dec. 14, totaling 27,595 shares, with CHWY trading right around $20 per share. Notably, Star has been the only insider to buy Chewy stock since at least 2019, and this pair of buys was his first since June 2022.
For 2024, the executive team at Chewy will be adding Chief Financial Officer David Reeder, previously of GlobalFoundries (GFS), while interim CFO Stacy Bowman will resume her duties as Chief Accounting Officer.
In its most recent quarterly earnings report, Chewy's adjusted profit of $0.15 per share surpassed Wall Street's expectations, even as revenue growth of 8.2%, to $2.7 billion, fell short of the consensus estimate. Chewy ended the quarter with a cash balance of $469.4 million, up from $330.4 million at the start of the year.
Net sales per active customer rose 14% in the latest quarter, while operating margins improved slightly to hit a new record of 28.5%. Rising revenues with increasing margins is a key indicator of competitive strength - a fundamental edge that has helped the company's foray into new businesses, such as Chewy pet pharmacy. The division is now a $1 billion+ business on a trailing 12 months' basis, and CEO Sumit Singh said the business segment is “over-delivering through gross margin."
For the year ahead, Chewy is forecast to clock forward revenue growth of 9.62%, compared to the sector median of 5.48%.
The stock has a “Moderate Buy” rating from analysts, with a mean target price of $25.70 - which implies an upside potential of about 7.8% from current levels. Out of 22 analysts covering the stock, 10 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating, 8 have a “Hold” rating, and 1 has a “Moderate Sell” rating.
Interim CEO Buys PLNT Stock
Planet Fitness, founded in 1992, is a franchisor and operator of fitness centers based out of Hampton, New Hampshire. It has around 2,400 clubs under its umbrella, making it one of the largest fitness club franchises by number of members and locations. The company's market cap currently stands at $6.2 billion.
Planet Fitness stock has declined 8% on a YTD basis - not quite as weak as CHWY's performance, but still significantly worse than the broader equities market.
On Dec. 11, interim CEO Craig Benson purchased 10,000 shares of PLNT at an average price of $68.15 for a total value of about $681,463. This is the first insider buy on Planet Fitness since June 2023, when former CEO Christopher Rondeau bought 10,000 shares of the company at around $64.95 each. Before that, the last insider purchase was nearly two years prior, in August 2021.
Planet Fitness beat Wall Street's estimates with its latest quarterly earnings. The fitness chain recorded yearly revenue growth of 13.6% to $277.6 million, thanks to store additions and increasing memberships, while EPS jumped 40.5% to $0.59. Analysts were expecting EPS of $0.55 on $268 million in revenue.
Looking ahead to 2024, signs of easing inflation, coupled with the higher probability of a “soft landing” for the economy, could provide tailwinds for the consumer discretionary company. Plus, PLNT has no debt due until 2025.
Forward revenue growth of 25.13% is expected for PLNT, along with 45% forward EPS growth. Both metrics are considerably higher than their respective sector medians. However, the shares are not overly expensive based on those growth forecasts; at 1.60 times forward PEG, PLNT is valued right in line with its industry peers.
Planet Fitness has a consensus rating of “Moderate Buy” from analysts, although its mean target price of $69.25 is actually a slight discount to current trading levels. The Street-high target price of $80 implies an upside potential of roughly 11%. Out of 17 analysts covering the stock, 10 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 5 have a “Hold” rating.
