When insiders are biting, it may be time to buy.
Insiders tend to have a much better idea of what’s happening inside of a company than most analysts do, and certainly more than investors do.
So when insiders are buying shares in big numbers, it’s worth doing some research to find out why. Because while insiders may sell shares for any number of reasons, they typically only buy for one reason: they believe the stock is undervalued and will trade at a higher value.
Here are two stocks that have seen some significant insider buying recently.
Range Resources (NYSE: RRC)
Range Resources (NYSE: RRC) is an independent natural gas shale player with projects in the Appalachian and North Louisiana regions of the U.S. and approximately 4,900 wells.
So far this year, Range’s SVP & CFO Mark Scucchi has bought 11,100 shares, director James Funk has bought 10,000 shares, and director Steven Gray has purchased 40,000 shares in two separate transactions.
While the stock may be down -32% over the last year, it demonstrated that it is starting to deliver on its investment thesis in its first quarter and posted positive free cash flow—a rarity for shale producers—which the company used to pay down debt.
The company should be able to continue to grow its free cash flow this year through its modest production growth, and Range now has access to Asia and Europe on a permanent basis, which will allow it to take advantage of better prices abroad.
The buying indicates to me that these insiders believe the sell-off of the stock over the last year has been overdone and that the stock is a more attractive investment at these levels.
Analysts are bullish on the stock and their average price target for RRC is $17.79, suggesting possible upside of 86% over the next twelve months.
GrubHub (NYSE: GRUB)
GrubHub (NYSE: GRUB) needs little introduction. The food delivery pioneer has been growing its top line nicely with 39% year-over-year growth in sales reported in its Q1 earnings release.
While the company reported an upside first quarter late last month, the results failed to significantly rally the take-out facilitator’s shares much.
But what’s interesting here is that CEO Matthew Maloney bought roughly $1 million worth of the stock—15,416 shares—on April 30, and Yum! Brands (NYSE: YUM) revealed that it, too, has acquired “an interest in GrubHub common stock” of an unspecified amount.
GrubHub is down -33% over the last year, and this cheaper price tag on the stock could be the reason behind both of these purchases.
But I think the positive statements about GrubHub by Yum! during its quarterly conference call—statements like “we are excited about our partnership with GrubHub and the opportunity to leverage the GrubHub marketplace” and “our partnership with GrubHub has allowed for real-time feedback … to continue to elevate the customer experience to even higher levels”—indicates strong support for GrubHub’s business model and possible tailwinds to its revenues.
There are thirteen Buy ratings on GRUB stock and one Strong Buy rating on the stock. The average price target for it is $116.50, indicating possible upside of 70.35% over the next twelve months.