When stocks fall in price, it’s frequently a signal for renewed investor interest. After all, low share prices offer a chance to live up to the old market advice, ‘buy low and sell high.’ What investors need is some way to tell the underlying reasons for a drop in share price, whether it bodes well or ill for the stock.
There is one signal that investors can look for – and that’s insider moves on a stock. Insiders are corporate officers, in positions of company leadership and responsibility; in positions that give them access to their company’s inner workings and future plans – exactly the knowledge that can impact stock trading and share value.
Investors can look to these moves, using TipRanks’ Insiders Hot Stocks tool, perhaps, for hints to a stock’s performance potential. We’ve used that tool to do just that, find a couple of stocks whose price has dropped recently – and that drop has coincided with some ‘informative buy’ insider trades. Let’s take a closer look.
loanDepot, Inc. (LDI)
Let’s start with loanDepot, a California-based financial company involved in the mortgage business. loanDepot is a holding company, who subsidiaries sell mortgage and non-mortgage lending products, making the company one of the nations largest lenders in the mortgage and nonbank retail mortgage sectors. Since its founding in 2010, the company has funded more than $275 billion in mortgage loans.
loanDepot held its IPO in February of this year, debuting the LDI ticker on the New York Stock Exchange on February 11. The company put 3.9 million shares on the market at an initial price of $14, and raised $54 million. Impressively, the stock more than doubled in its first two trading days as a public entity. Since then, however, the stock turned south and is now off 77% from its peak.
The company’s revenues and earnings have also been trending downward over the past year. At the top line, quarterly revenue has fallen from $1.6 billion in 4Q20 to $1.1 billion in the recently reported 3Q21. EPS over the same period has fallen from $1.16 to 46 cents. It is important to note, however, that the Q3 numbers beat the forecasts. Along with the Q3 result, the company issued a dividend payment of 8 cents per common share in the quarter, yielding 4.5%.
Turning to the insider trading, we see that CEO Anthony Li Hsieh spent $8.72 million on a stock purchases last week. His transaction moves the needle on insider sentiment for this stock into positive territory.
Covering this stock for Raymond James, analyst John Davis writes: “To us, the one knock is that at the end of the day, the company is a mortgage lender and performance will be highly correlated with the underlying mortgage market, which is possibly nearing a peak in the cycle. However, we expect the company to continue to outpace industry growth as LDI continues to gain share.”
Noting that the mortgage market faces headwinds in the near-term, Davis also says, “…we still believe there is a price to pay for everything and with shares trading at just 6x our revised 2022 adj EPS (vs peers 8x), we view the risk/reward as positively skewed.”
In line with these comments, Davis rates LDI shares as Outperform (i.e. Buy), and his $10 price target implies a 12-month upside of ~43%. (To watch Davis’s track record, click here)
Overall, LDI gets a Moderate Buy rating from the analyst consensus, based on 10 recent reviews that include 5 Buys, 4 Holds, and 1 Sell. The shares are priced at $6.98 and their average forecast of $10.45 suggests room for an upside potential of ~50%. (See LDI stock analysis on TipRanks)
EverQuote, Inc. (EVER)
Turning to the second stock, we’ll look at EverQuote, an established online insurance marketplace. EverQuote uses its online platform to connect insurance buyers and insurance sellers – customers and agents, allowing sellers to post their policies and price points while customers can search for insurance products by sector, from auto to home to life. EverQuote does not charge fees to insurance customers, rather the company takes referral fees from insurance companies, paid when policies are purchased.
EverQuote has faced some headwinds in recent months, with share price and EPS declining even as revenue grew. The top line in the recent 3Q21 came in at $107.5 million, the highest quarterly total of the past two years and up 19.5% yoy, while EPS dropped to an 18-cent net loss, down from a 12 cent EPS loss in the year-ago quarter.
The headwinds come as auto insurers have seen an increase in claims costs, and as the insurance industry generally has seen a pullback on marketing spending. Both factors have negatively impacted the industry’s bottom line, and its customer acquisition rates. As a result, since the start of this year, the stock’s share value has fallen by 61%.
Despite the headwinds, EverQuote has seen a significant buy from an insider last week. Looking at the insider trade, we find that David Blundin, of the company’s Board of Directors, made two purchases, totaling 63,000 shares. Blundin paid approximately $843,000 in these stock buys.
5-star analyst Aaron Kessler, in his note on EVER for Raymond James, acknowledges the company’s headwinds and writes: “The impact is expected to persist for a few quarters, and we would expect a gradual improvement throughout 2022 as carriers adjust pricing. We believe EverQuote can return to its long-term growth targets of ~20% in 2023. We note we saw a similar scenario play out in 2017 with 3% growth and a strong recovery in 2018 (29% y/y).”
To this end, Kessler rates EVER shares an Outperform (i.e. Buy), and sets a price target of $26 to suggest a one-year upside of ~82%. (To watch Kessler’s track record, click here)
Overall, EVER stock has a Strong Buy consensus rating, based on 5 recent reviews breaking down 4 to 1 in favor of Buy over Hold. The shares are trading for $14.32 and their $21 average price target implies an upside of 46% from current levels. (See EVER stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.