It is a corporate governance problem when insiders sell shares in the face of share repurchase programs.

Take the example of Copart (ticker: CPRT). CPRT insiders have not purchased any shares over the past several years, yet they have done plenty of selling. Further, CPRT share repurchases helped support the stock while insiders sold (see detail below).

The absence of good corporate governance as it relates to share repurchase programs is not a new issue. SEC commissioner Robert J. Jackson Jr. gave a June 2018 speech entitled “Stock Buybacks and Corporate Cashouts” which detailed the common practice where public company executives sell shares shortly after announcing share repurchase programs. The Wall Street Journal recently covered the topic as well ($).

Getting back to Copart (click the table below to expand):

• Insider Selling: Copart insiders have not purchased CPRT shares in recent years but have sold plenty of CPRT stock. This insider selling activity creates a natural conflict in years where the company executes share repurchases.
• Fiscal Year 2019: Copart insiders sold $43 million worth of shares and purchased zero while the company repurchased shares worth $365 million.
• Fiscal Year 2020: Copart insiders have sold $50 million worth of shares year-to-date and purchased zero. The company is scheduled to report earnings at the end of February at which time share repurchases made during the quarter will be reported.
• Dividends vs. Share Buybacks: As a general rule we prefer dividends to share buybacks. The latter gives investors an easy way out of the stock while the former rewards investors for holding the stock (see John Malone’s cookie analogy at note’s end).

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