See how Verity analysts flagged unusual performance awards at YEXT ahead of the stock’s spike.
Tracking company stock-based compensation practices and deviations from expected behavior can be a powerful source for differentiated investment ideas.
When viewed through the correct lens, stock and option grants can be identified as opportunistic in nature, revealing undervalued signals or even presaging potentially material news.
A recent example at the small-cap technology firm Yext (YEXT) offers a case study in the value of the equity grant database and research unique to VerityData | InsiderScore.
On June 2, with YEXT earnings set to be reported on June 6, VerityData issued a research brief to clients noting how three top executives of the AI and business analytics company were awarded unexpected stock awards on May 31.
The timing was unusual in that the award was granted just outside the four-business day window that would have triggered additional disclosure according to new SEC rules. The rules designed to curb the practice of awarding equity immediately prior to material news, including earnings releases.
The awards were also unusual in comparison to a similar award that was granted to then-incoming CEO Michael Walrath. Walrath’s March 2022 award vests when the stock tops prices of $15.00, $17.00, $19.00 and $21.00. These new awards, meanwhile, have vesting targets of just $15.00 and $17.00.
While YEXT did not provide any detailed reasoning behind the award, Verity analysts stated “it’s reasonable to assume the company made an intentional decision to get these awards handed out prior to the upcoming earnings release.”
After the market closed on June 6, YEXT reported earnings that exceeded analyst estimates, while issuing upside guidance for the current quarter and the full year. On the earnings call, the company and analysts focused on the company’s positioning to take advantage of opportunities around generative AI.
YEXT shares closed at $9.25 on June 2, the day that VerityData’s research brief was issued to clients. On June 15, they closed $13.49, a gain of 46%.
Companies have filed roughly 2 million transactions coded as stock-based compensation in the last 16+ years. Identifying how management is compensated and incentivized, and identifying unusually timed, sized, or constructed awards can provide valuable insight into valuation views, management incentives and actions, and board expectations, as well as unique investment opportunities.
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