Investors can learn a lot by following the behavior of company insiders when it comes to how they handle positions in their own company. People can sell for many reasons (buying a house, paying for college, or getting ready for retirement). They generally only buy for one reason: to make more money.
The chief executive officer is often one of the largest and best-informed shareholders in any company. Let’s see whether Prospect Capital Corp. (NASDAQ: PSEC) CEO John Barry has been increasing or decreasing his shares over the past year and whether he knows something we don’t.
What You Need to Know About Prospect Capital
An asset manager
Prospect Capital is a business development company and a leading provider of private debt and private equity to middle-market companies in the United States with a focus on sponsor-backed transactions and direct lending to established owner-operated companies.
It invests primarily in first-lien and second-lien senior loans and mezzanine debt, which in some cases include an equity component. It provides capital to middle-market companies and private equity financial sponsors for refinancings, leveraged buyouts, acquisitions, recapitalizations, later-stage growth investments, and capital expenditures. Its portfolio is diversified across a wide variety of industries, including manufacturing, industrials, energy, business services, financial services, food, health care, and media, as well as many other sectors. The company also invests in other high-income-producing strategies, including collateralized loan obligations, marketplace lending, and multifamily real estate.
Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. It seeks to maximize returns and protect risk for investors by applying rigorous credit analysis to make and monitor its investments.
Prospect Capital was incorporated in 2004 and is headquartered in New York City. That is also the home to such competitors as Ares Capital Corp. (NASDAQ: ARCC | ARCC Price Prediction) and BlackRock Inc. (NYSE: BLK).
Barry has been CEO since 2004 and is also the chair of Prospect Capital’s board of directors.
The company had over $885 million in revenue last year and has a market capitalization of more than $2.5 billion. Its shares have been in retreat for the past year, down more than 18%, while the S&P 500 is up over 20% in that time.
How Prospect Capital’s CEO Is Trading
Buying or selling?
One year ago, Barry owned almost 75.0 million shares, worth about $496.2 million. Today, he owns around 73.2 million shares, which still is a stake of nearly 16%. However, that 6 million or so decline in the total reduced the value of the stake to $403.8 million.
| Shares a Year Ago | Shares Today | % Change |
| 79,450,383 | 73,198,550 | −7.87% |
Why has John Barry been selling shares? There could be a variety of reasons. Despite being down year over year, the share price actually has been on the rise since hitting a 52-week low in late October. Should investors take a lack of insider buying to be a sign of a lack of confidence in the company’s prospects? Or are things quiet for now due to the upcoming quarterly report? Insiders are often prohibited from buying or selling shares ahead of an earnings report. Watch for any insider action following the mid-February report for further clues.
Other internal shareholders to watch include co-founder and Chief Operating Officer Michael Eliasek. He owns 0.4% of shares outstanding, worth about $10 million. Eliasek bought shares of Prospect Capital in November and December. (These 19 executives pay themselves over $150 million a year.)
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