When key insiders such as executives, directors, and major shareholders purchase company shares, it is often seen as a bullish signal for the stock's future performance. These insiders are typically assumed to have deeper insights and a more thorough understanding of the company’s operations and strategic direction compared to the general public. Accordingly, their decisions to invest are interpreted as a vote of confidence, reflecting their belief in the company’s potential growth and stability.
However, when the stock in question is selling off after tepid guidance - and from a growth company that's not yet profitable, at that - can investors take the same bullish cues from insider buying? Or is the insider activity in these cases simply an attempt to support a faltering share price?
Key insiders of Bill Holdings (BILL), a payments software provider, recently purchased company shares worth $4 million directly after a softer-than-forecast earnings report that featured disappointing guidance, with Wall Street's negative reaction exacerbating downside pressure in a security that has already been underperforming for a while.
So, what's behind the insider buying on BILL at these levels? Here's a closer look.
About Bill Holdings
Founded in 2006, Bill Holdings (BILL), better known as Bill.com, is a leading provider of automated, cloud-based software for financial operations. The company's platform helps businesses streamline their accounts payable and accounts receivable processes, making it easier for them to manage their cash flows and reduce costs. BILL's market cap is currently $5.8 billion.
Notably, BILL stock has had a brutal time in the markets this year, with its share price dropping by 31.3% on a YTD basis and 52.6% over the past year.
Bill Beats on Fiscal Q4 Earnings
Bill reported its fiscal Q4 earnings results after the close on Aug. 22, and both revenue and earnings surpassed Wall Street's expectations. Bill's Q4 revenues rose 16.1% to $343.67 million, with core subscription revenues rising 16% over the same period. Overall, over the past five years, the company's revenues have clocked an impressive CAGR of 64.12%.
Adjusted EPS improved by 18.8% on a YoY basis to $0.57, marking the eighth consecutive quarterly earnings beat by BILL.
Net cash from operating activities was $78.62 million and free cash flow rose to $73.09 million from $72.88 million in the prior year. All in all, the company closed the quarter with a healthy cash balance of $3.35 billion.
Backed by its strong cash reserves, Bill recently approved an additional $300 million for buybacks to take advantage of low share prices as well as reward shareholders.
In Q4, Bill processed total payment volumes of $76 billion, up 10% from the prior year. Further, the company processed 28 million transactions during the fourth quarter, an increase of 19% year-over-year. Finally, its network members at the end of the quarter stood at 7.1 million, which represented an uptick from the previous year's figure of 5.8 million.
BILL Stock Sells Off on Soft Guidance
Despite the fiscal Q4 earnings beat, BILL stock dropped more than 6% on Aug. 23 as investors reacted to a tepid forecast. The software company guided for fiscal Q1 adjusted earnings of $0.48 to $0.51 per share, will full-year EPS expected between $1.36 and $1.61. On average, analysts were looking for Q1 EPS of $0.51 and fiscal 2025 earnings of $2.21 per share.
BILL's full-year revenue guidance also came in light, with the predicted range of $1.41 billion to $1.45 billion comparing to the consensus of $1.44 billion.
“In fiscal 2025, we will be making a number of targeted investments that accelerate our strategic priorities and our ability to capture the large greenfield market opportunity that we are pursuing,” explained CFO John Rettig on the Q4 conference call. “We believe these investments position us to deliver significant sustainable revenue growth and margin expansion over many years, but will moderate our profitability growth in the near term. We operate our business with the objective to be ex-float profitable on a non-GAAP basis and to generate significant free cash flow. We intend to scale both over time on the road to becoming GAAP profitable.”
CEO Leads Heavy Purchases of Company Stock
Days later, Rettig was among three key insiders who collectively scooped up millions in BILL shares.
On Aug. 26, Chairman and CEO Rene Lacerte purchased 42,248 shares of the company at an average price of $49.5964 per share for a total value of about $2.095 million. Lacerte now owns roughly 2.5% of BILL.
On the same day, CFO Rettig bought 21,124 shares at an average price of $49.3979 per share, investing just over $1 million.
Two days later, on Aug. 28, board member Brian Jacobs bought 25,000 Bill shares for an average price of $53.5359 per share, spending more than $1.3 million in the process.
All told, the three insiders spent $4.47 million buying BILL stock over the course of three trading days, marking the first insider purchases on the company since last November. This suggests that insiders may think the post-earnings sell-off is overdone.
From Cost Cuts to Strategic Investments
Behind the scenes, Bill has been making moves to remove inefficiencies from its operations. In recent quarters, the company has reduced its marketing spending on smaller clients and largely put this customer segment in a self-service mode. Although this has resulted in a decline in customer counts, the presence of large, high-margin customers is rising.
Moreover, last year, in December, the company chose to eliminate roughly 15% of its global headcount and close down one of its flagship offices in Sydney. These initiatives have resulted in the company maintaining its gross margins consistently at the above 80% levels.
However, BILL said in its latest earnings call that it's beginning to hire again after three quarters of holding its headcount flat - part of the company's broader strategy of “playing offense” with its strong balance sheet to help drive core revenue growth of 20% in fiscal 2026.
While investors might be frustrated with the soft forecast for 2025, insiders may have a longer-term view on BILL's adjusted guidance.
What's the Analyst Outlook for BILL Stock?
Analysts have an average rating of “Moderate Buy” for BILL stock, with a mean target price of $69.64 - which suggests expected upside potential of about 24.3% from current levels.
Following a recent downgrade from Goldman Sachs, sparked by BILL's mixed guidance, the stock has 11 “Strong Buy” ratings, 1 “Moderate Buy” rating, 12 “Holds,” and 1 “Strong Sell.”
