One indicator that investors tend to view as a sign of confidence among company management is insider buying - when executives, board members, and major shareholders put their own money on the line by purchasing company shares. Since these insiders have unparalleled access to the company's strategic plans, advantages, and challenges, their willingness to invest in their own stock is often considered to be a bullish signal.
In a market environment where a handful of small-cap stocks are starting to outperform their larger-cap counterparts, it's worth pointing out the insider buying on a couple of Russell 2000 Index (RUT) components this March - particularly with the purchases made by top executives at both companies. Here's a closer look at the insider buying activity on these under-$20 small caps.
About Lemonade Stock
Founded in 2015 and based out of New York City, Lemonade (LMND) operates as an insurance company focused on homeowners and renters insurance in the United States. They utilize artificial intelligence (AI) and machine learning to streamline the underwriting and claims process, aiming to provide faster and more transparent service. Its market cap currently stands at about $1.2 billion.
Lemonade stock is up 20.3% over the past year.
CFO Scoops Up LMND Stock
On March 6, Lemonade CFO Timothy Bixby purchased 10,000 shares of the company at an average price of $16.54 per share, for a total value of $165,400. Bixby now owns a stake worth 0.4152% of the company.
This purchase by Bixby is the only notable buy on record by LMND company insiders, and took place shortly after the stock's broadly negative earnings reaction.
While the company has yet to achieve profitability, its quarterly results did exceed consensus estimates. In Q4 2023, Lemonade reported revenues of $115.5 million - up 31% from the previous year, and surpassing estimates by about $4 million. The top-line growth was fueled by a 12% rise in customer count from the prior year to 2.02 million, along with a 7% climb in the premium per customer to $369.
The Q4 loss per share narrowed to $0.61 from $0.93 in the year-ago period, and beat the consensus estimate. Lemonade's per-share losses over the past five quarters have consistently come in narrower than the Street's estimates, reflecting effective cost management measures by the company.
However, investors overlooked the strong Q4 results and sent LMND stock lower in response to a forecast that came up short.
Specifically Lemonade expects Q1 revenue of $111 million to $113 million - indicating a sequential decline from Q4, and below the average analyst estimate of $119.5 million. Full-year 2024 revenue growth is expected to range between $505 million and $510 million, which again missed the consensus forecast of $520.9 million. Along with lighter-than-anticipated revenue, LMND said it's looking to double its growth budget this fiscal year from the $55 million it spent in 2023.
It wasn't all bad news; Lemonade ended the December quarter with a cash balance of $945 million, and expects to turn cash flow positive in 2025, followed by positive EBITDA in 2026. With the stock valued around 2.22 times forward sales, the CFO's pickup of shares following the post-earnings sell-off suggests he thinks LMND may be attractively priced around current levels.
Overall, analysts have deemed LMND stock a “Hold,” with a mean target price of $18.12, which is a premium of about 11.6% to Friday's close. Out of 11 analysts covering the stock, 1 has a “Strong Buy” rating, 7 have a “Hold” rating, 2 have a “Moderate Sell” rating, and 1 has a “Strong Sell” rating.
About Redfin Stock
Based out of Seattle, Redfin (RDFN) was founded in 2006 by Glenn Kelman, Michael Stengel, and Adam Rifkin. The company operates as a full-service real estate brokerage, leveraging technology to streamline the buying and selling process for customers. They offer services like online home listings, agent matching, and iBuying (directly buying homes from sellers). Its market cap is currently at $753.6 million.
Redfin stock has been a significant underperformer, as the Fed's historic rate-hike campaign has impacted the housing market. The shares are down 28.9% over the past 52 weeks, and they've dropped nearly 42% so far in 2024.
CEO Buys 30.5K RDFN Shares
CEO Glenn Kelman purchased stock on March 6, picking up 30,500 shares of RDFN at an average price of $6.4129 per share for a total transaction value of about $195,594. As with the insider buy on LMND described above, the purchase came shortly after Redfin's Q4 earnings release.
The executive made his last purchase of the company's shares just over a year ago, in February 2023. In that transaction, he bought 35,335 shares of the company, priced at $8.632 each, for a total value of about $304,694. Kelman's latest buying spree upped his stake in Redfin to 1.2231%.
Redfin's latest results for Q4 of 2023 were a mixed bag, as revenue fell short of analysts' estimates, while the per-share loss came in narrower than anticipated. The company reported quarterly revenues of $218.1 million, down 2% YoY, compared to the consensus of $220.3 million.
On the other hand, the loss per share of $0.20 was not only much narrower than the previous year's loss of $0.57 per share, but it also edged past the consensus estimate for a loss of $0.21 per share. Redfin's quarterly per-share losses have surpassed Wall Street estimates in each of the past five quarters.
In 2023, the company generated net cash from operating activities of $56.7 million, which denotes yearly growth of 40.2%. With a cash balance of $195 million, and $193 million in debt due in 2025, CFO Chris Nielsen told analysts “we feel like we've got plenty of capital to manage the business” on the Q4 earnings call.
That said, the company predicted revenue growth of 0-4% for the full fiscal year, with the guidance range of $214 million to $223 million arriving in line with analysts' expectations.
While the earnings report was well-received, RDFN stock fell sharply to end last week, as investors reacted to a National Association of Realtors (NAR) settlement that's expected to disrupt commission structures industry-wide.
Notably, in the earnings release, CEO Kelman described the housing market as “dreadful,” but said the company was optimistic over breakthrough sales initiatives, including “a commission refund to customers who hire a Redfin agent after the first tour.”
Overall, analysts have deemed Redfin stock a “Hold," with a mean target price of $7.40 - about 23% north of Friday's close. Out of 17 analysts covering the stock, 15 have a “Hold” rating, 1 has a “Moderate Sell” rating and 1 has a “Strong Sell” rating, with not one analyst recommending a “Buy.”
