Every once in a while, we come across a unique, as cliché’ as it is, situation when reviewing the previous week’s insider buying roster. This week, there were a pair of unusual trades. The Chief Executive Officers (CEO) for JOANN Inc. (JOAN) and HighPeak Energy, Inc. (HPK) bought sizeable amounts of their company stock.
JOAN’s Chief Executive Wade Miquelon purchased $540,035 of the arts and crafts retailer at $11.36. (1) All normal at first glance, however, the company just did its initial public offering (IPO) on March 12, 2021 at $12 per share. I’ve been in the financial markets since 1991 and reviewing insider trades for the last 15 years, maybe a little longer, with occasional respites. I cannot recall another instance when a CEO bought the company stock within a month of its IPO. I am sure it’s happened before, but it’s uncommon based on my recollection.
As out of the ordinary as Miquelon’s buy is based on experience, HPK’s CEO, Jack Hightower’s $1.8 million buy across two tickets brings our attention to a situation that is way out of the ordinary on multiple levels. (2)
First, there are zero analysts covering HPK (3), which is an independent oil and natural gas company that engages in the acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids reserves in the Midland Basin in West Texas.
A lack of Wall Street coverage is unusual enough, but secondly, insiders already own 94.38% of the 92.68 million shares outstanding and intuitions control just 2.24%. (4)
Ok, so no coverage, just 5.2 million shares available for trading and average trading volume of 158,052 is usually going to add up to a volatile stock. It’s not too surprising then to see HighPeak Energy’s 52-week trading of range of $4.20 on the low end to $21.82 at the top end.
Without the crutch of Wall Street forecasts, investors are on their own to make earnings models and potential price targets. Fortunately, management did provide guidance following their fourth quarter earnings announcement. You can read about it here: https://finance.yahoo.com/news/highpeak-energy-inc-announces-fourth-221000412.html.
We took HPK’s 2021 guidance as provided here:
2021 Guidance – One Rig Program
Net production – MBoe per day
December 2021 production – MBoe per day
|10.5 to 12.0
12.0 to 14.0
Capital Expenditures: DCE&F
Capital Expenditures: Infrastructure/Land/Other
Capital Expenditures: Total
|$115 – $125 million
$20 – $25 million
$135 – $150 million
|Gross Operated Wells Drilled
Average Gross Lateral Length
Gross horizontal D,C,E&F/ft
|20 – 24
11,500’ – 12,000’
$500 – $550(1)
We used last year’s stock-based compensation expense found here: https://www.sec.gov/cgi-bin/viewer?action=view&cik=1792849&accession_number=0001437749-21-006064&xbrl_type=v#
We also used “Using flat prices of $63.00 per barrel oil, $3.00 per MMBtu of natural gas, adjusted for differentials, and an estimated realized price of $19.52 per barrel of natural gas liquids” and “HighPeak’s cash operating costs for the fourth quarter were $14.91 per Boe including lease operating expenses of $6.47 per Boe, production and ad valorem taxes of $2.05 per Boe and cash G&A expenses of $6.39 per Boe. from their guidance to make our own earnings estimates” to create our own earnings estimates.
For 2021, we arrive at earnings per share (EPS) range of -$0.07 to $0.34. By year-end, provided the company meet its December 2021 production guidance, HPK could potentially be on pace to earn $0.18 to $0.67 per year. Using a price to earnings ratio of 40, which is HPK’s current number, creates a price target range of $7.13 to $26.72 using December’s run rate guidance from management.
As we type, HighPeak Energy trades at $7.20 per share.
OUTLOOK: Both JOANN Inc. (JOAN) and HighPeak Energy, Inc. (HPK) insider buys are uncommon situations. In our opinion, HPK probably offers investors more upside and a whole lot more risk that comes with it. However, there are a couple, potentially big catalysts available to HPK shareholder driven by Wall Street coverage.
If analysts were to make buy recommendations, then shares could easily move higher.
If institutions begin to accumulate the stock for its potential appreciation based on the company meeting its guidance, it could move aggressively with just 5.2 million shares available for trading. Although, HPK would likely free up shares through secondary stock offerings, which would allow insiders to sell. And that makes the CEO’s $1.8 million buy even more intriguing.
HighPeak Energy is an early entry play and only for those investors willing to assume maximum risk i.e. potentially all of your investment.
1 – https://www.secform4.com/insider-trading/1834585.htm
2 – https://www.secform4.com/insider-trading/1792849.htm
3 – https://finance.yahoo.com/quote/HPK/analysis?p=HPK
4 – https://finance.yahoo.com/quote/HPK/key-statistics?p=HPK