Sometimes we can see more about the future of a young company based on what insiders do instead of what they say. That is why we will go through the ownership structure of SoFi Technologies ( NASDAQ:SOFI ), and see which insiders are serious about the long-term future of the company.
The conclusions of this article are based on some assumptions. For one, insiders that see their company creating long term value will seek to maximize their ownership stake and will be very conservative with selling stock. Insiders - that is, owners and managers, will prioritize future equity gains instead of cash returns. Finally, insiders that think the stock is undervalued or that something good will happen in the near to mid-term will buy additional stock.
Investors may place different significance on these values, and they are by no means definite indicators of future performance, but it is always good to have management be congruent with statements and deeds.
We will start with the ownership structure, while it is true that founders sell and dilute their equity over time, those who can and believe in the future of their company seek to retain as much as possible.
Insider Ownership of SoFi Technologies
While not a rule, I view anything less than 5% ownership stake in a company as "Babysitter management", which means that they have transformed into professional managers whose job it is to babysit the business for shareholders. On the flip side, insiders that have a 5%+ founder/management stake are the shareholders , and will strive to push the business since their financial success is tied to the company's.
SoFi Technologies insiders still own 9.8% of the company, currently worth about US$883m based on the recent share price. This is a decent ownership stake and gives shareholders some confidence in the alignment of interests between management and investors.
Unfortunately, 4.2% of the total ownership stake is concentrated in only one insider and the rest hold less than 1% stakes.
Now let's see what insiders have been doing with their stock in past 12 months.
SoFi Technologies Insider Transactions
While insider transactions are not the most important thing when it comes to long-term investing,it is perfectly logical to keep tabs on what insiders are doing.
Over the last year, we can see that insiders have bought 57.30k shares worth US$678k.But they sold 11.35m shares for US$237m. In total, SoFi Technologies insiders sold more than they bought over the last year. This is expected as SPAC company investors tend to cash out as soon as they feel the stock converged to value, and we can see that in the last 12 months t he average sell price was around US$20.91 .
We also need to note that the selling, on average, was at well above the recently traded price of US$9.87 - which may indicate that insiders wanted to capitalize on past investor enthusiasm.
You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Over the last year, we can see that the biggest insider sale was by the Executive Director, Clay Wilkes, for US$218m worth of shares, at about US$21.60 per share.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
As the situation changes, so too does management's perception. SoFi has somewhat developed since the winter drop, and this may have motivated investors to engage again. The landscape has also shifted, with inflation posting multi decade highs and the economy tightening, investors may expect to see a higher demand for personal funding loans which will benefit SoFi.
That is why, it is good to see that the CEO & Director Anthony Noto spent US$299k on stock , and there wasn't any selling. The transactions were made between the 4th and 7th Mach 2022 , which indicates a recent change in sentiment, and possibly an indication on better future performance.
On the other side, Mr. Anthony Noto holds some 0.32% stake in the company, which is not what one would expect to see in a young growth company, while his total compensation was US$102.9m for 2021 - A bit much, especially when you consider that the company lost US$524m in the same year. This may be a result of taking the company public, but it would be great to see total CEO compensation (apart from base salary) as a function of earnings.
SoFi is one of the FinTech platforms whose stock held up more than the other declining growth stocks in 2021, it seems that investors were more confident on the fundamental value of the company even amid the SPAC rout.
While analyzing the 12 months of insider transactions, we see that in the last few days the CEO bought stock, possibly signaling confidence in the company or reflecting a belief (not certainty) that the stock may be undervalued.
The ownership structure is satisfactory, however most of it (4.2%) is concentrated within Mr. Clay Wilkes, while the rest of management team hold a very small stake.
We've discovered 2 warning signs that you should run your eye over to get a better picture of SoFi Technologies.
Of course SoFi Technologies may not be the best stock to buy . So you may wish to see this free collection of high quality companies.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions.
What are the risks and opportunities for SoFi Technologies?
Earnings are forecast to grow 76.88% per year
Shareholders have been diluted in the past year
Significant insider selling over the past 3 months
Has less than 1 year of cash runway
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Goran is an Equity Analyst and Writer at Simply Wall St over 4 years of experience in financial analysis and company research. Personally, Goran has over 4 years of experience in financial analysis and company research, where he previously worked in a seed-stage startup as a capital markets research analyst and product lead and developed a financial data platform for equity investors.