Insiders on a Buying Binge

Saul is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It was Peter Lynch who said something like “There are lots of reasons why insiders sell, but only one reason why they buy: They believe the price will go up.”

Consider the little technology company Acorn Energy (NASDAQ: ACFN).

Out of the last 29 or so insider trades, dating back to June 2010, an amazing 28 have been purchases at market!!

The only sale was 20,000 shares by the CEO of an acquired company. The most recent purchases were in May and June of this year. I counted nine or ten people buying shares, mostly directors, but also the CEO and President, and the VP, General Counsel and Secretary, and his successor as well. Here are the details of the transactions.

I get the impression that these guys are selling their furniture to raise money so they can go out and buy a few thousand more shares. It's like every time they get some money together they go buy four or five thousand more.

Think of it! Look around at other technology companies: For example, 3D Systems (NYSE: DDD), which has been in the news a lot recently. Its last 25 insider trades have all been sales. Not a single insider buy. A list of Amazon’s (NASDAQ: AMZN) last 23 insider trades shows 22 insider sales for 92,162 shares, and a single insider buy of 165 shares by a director. Insider sales thus made up more than 99.8% of the dollar amount of the insider trades for Amazon. Google (NASDAQ: GOOG) has over one hundred (!) insider sales going back just to February of this year, and multiple hundreds of insider sales going back two years. Not a single insider buy. NOT ONE!

Now this is normal for technology companies and I have no problem with what they are doing. However it highlights how strange it is to have a technology company like Acorn where everyone is buying. I certainly don't know any other companies like that.

You have to wonder "Why are they buying?" Well, in the March quarter conference call, they said that by 2014 their revenues would be five to ten times as large as in 2011, and they sounded like they thought they were being way conservative. In fact they were pretty euphoric. 

Okay, what does Acorn do? They are actually a publicly traded venture capital company. They buy small technology start-up companies (four or five in their stable at present) in the areas of energy and energy security. Acorn restricts itself to technologies that are on the cusp. That is, technologies that have already been, or are about to be, proven in the market. These are technologies that address large markets, and that are not capital intensive.

They seem to be breaking through in the past six months on at least two of these companies. The most promising seems to be their subsidiary called USSI, which has developed a fiber-optic sensor system for use in oil and gas reservoir management, pipeline monitoring and perimeter security. An oil and gas producer can use USSI’s systems to monitor the flow of its reservoirs, improve the management of its production, and increase its extractable reserves.

USSI’s sensor is very low-cost and has far, far, greater sensitivity than legacy products. So if it tests out to be effective and to be reliable it’s a no-brainer for the producers. Well, after months of testing by producers, Acorn is starting to announce large commercial orders, and the company says they have plenty more producers currently evaluating the system in addition to those who have placed initial orders. And they expect those who have placed initial orders to continue to place many more.

The potential market is huge for a little company like this, and Acorn has been investing more money to ramp up production to keep up with orders and expected orders.

And that's why all those insiders have been buying.

Oh, and Acorn also pays a quarterly dividend of three and a half cents.

 


SaulR80683 has long positions in Acorn, Amazon, and 3D Systems, and no position in Google. The Motley Fool owns shares of Amazon.com, 3D Systems, and Google and has the following options: short AUG 2012 $30.00 calls on 3D Systems and short NOV 2012 $35.00 calls on 3D Systems. Motley Fool newsletter services recommend 3D Systems, Amazon.com, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.

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