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As stock prices tumble, restaurant CEOs start buying

CEOs of Papa John’s and Brinker International are among those who have bought stock since Wall Street’s coronavirus-related selloff began in February, says RB’s The Bottom Line.
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the bottom line

Restaurant stocks have been hammered along with many other industries in recent weeks as investors have grown fearful of the impact of the coronavirus on the economy.

For some restaurant executives, this has become an opportunity to go shopping—for their own stock.

Four CEOs have acquired their own stock in recent days: Rob Lynch, newly minted CEO of Papa John’s; Wyman Roberts, CEO of Chili’s operator Brinker International; Dan Accordino, CEO of Burger King operator Carrols Restaurant Group; and Ryan Zink, acting CEO of Good Times Restaurants.

In general, CEOs and other public company executives sell more often than they buy because they receive much of their compensation in the form of stock grants and other awards. As a result, they sell to diversify their holdings.

Indeed, according to Sentieo, insider selling of stock almost always exceeds insider buying.

But historically, there have been exceptions when insiders buy more than they sell. One big one came in late 2008 and 2009, when stocks plummeted at the outset of the credit freeze and recession. They did it again during periods of stock volatility in 2011 and later in 2018.

The recent purchases by restaurant CEOs fit a pattern: The executives see a dip in their companies’ valuations and opt to purchase shares. In the process, they demonstrate to shareholders their commitment to the brand.

“If you look at restaurants, we’re seeing a number of stocks down 50% or more from their 52-week highs,” said Nick Mazing, director of research for Sentieo. He mentioned Shake Shack, Potbelly, Dave & Buster’s and franchisee Carrols.

“Insider buying, especially insider buying by several management members, is considered a high-confidence sign by the markets that the stock is undervalued simply because no one externally has as good a view on how the business is doing as the management teams,” he said.

To be sure, Mazing said, “it is not foolproof, but it is a very good indicator.”

He noted, for instance, that the CEO of fitness franchise Planet Fitness revealed a stock acquisition Friday, sending that company’s shares up 4% at a time when the broader markets declined 2%.

In each of the restaurant cases, the sales helped lift shares at least slightly following steep recent declines.

Lynch bought 7,120 shares of Papa John's stock at $55.92 per share on Feb. 28. The notice was filed on March 2, and the stock rose 1.9% the next day.

The chain's stock had rallied in recent months but, like many other stocks, had declined amid coronavirus fears.

Accordino, meanwhile, acquired 50,000 shares of Carrols at just under $4.20 per share on Feb. 28. That notice was filed March 3. The stock rose slightly that day.

Carrols stock had been pummeled amid concerns about the company’s cash flow. At the time of Accordino’s purchase, it had lost more than 60% of its value since last May. Accordino’s purchase only provided a temporary respite from the decline—it lost 10% on Friday, closing below $3 a share.

Roberts, meanwhile, acquired 4,425 Brinker shares on March 2, and the notice of the insider purchase was filed with the SEC that day. The stock rose 1.8% the next day.

However, the insider purchase came as the Brinker’s stock fell 11% in recent weeks.

Zink, meanwhile, is the acting CEO as well as CFO of Good Times Restaurants. He acquired 6,000 shares, all at under $1.50 per share, on Feb. 28, and the notice was filed March 2. The acquisition provided a 2.9% lift for the stock.

Still, like many of the other purchases, the Good Times purchase would only lift the stock for so long. On Friday, it declined 10%. Good Times stock has lost half of its value over the past year.

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