Loandepot stock investors beware: insiders are dumping shares

Loandepot (NYSE: LDI) stock price has been in a strong sell-off in the past few months as concerns about the mortgage industry continue. The shares plunged from a high of $3 in February to a low of $1.38. It has now pulled back slightly to trade at $1.80. This performance is in line with other mortgage players like Rocket and Velocity Financial.

Insiders are aggressively selling

One of the best trading and investing strategies is looking at actions of key insiders of companies. These insiders tend to have a better view of a company’s trajectory. This explains why many corporate insiders tend to sell shares before a company collapses. Just ask the leaders of companies like Carvana and Silicon Valley Bank. 

Early this week, I noted that insiders at Atlassian, the parent company of Jira and Trello were dumping their shares. They are not alone. Executives at Loandepot have continued selling their shares in the past few months. 

Data compiled by Barchart shows that insiders have sold over 8.2 million shares in the past 12 months. They have sold 1.2 million stocks in the past three months. And this selling goes long before that. One of the top sellers is Patrick Flanagan, who expressed optimism in the company in the last earnings call, saying:

“We entered 2023 financially sound with $921 million of tangible equity, $864 million of unrestricted cash and what we believe are excellent relationships and the support of our financing partners the agencies and our other investors.”

Other insiders who have sold their Loandepot stocks are Dan Binowitz, John Hon Lee, and Nicole Carrillo. To be clear, insider selling is not always a bad sign since they often need funds for personal reasons. The concern happens when no insider has bought shares in a long period since it signals that they are not confident in the company.

Is it safe to buy Loandepot stock?

Loandepot stock price has crashed because of the weakness of the real estate market as mortgage rates jump. In the most recent earnings report, the company said that its revenue dropped by more than 75% in the fourth quarter. Its earnings per share was worse than expected. 

The firm also warned that its business would struggle for a while, which explains the need for layoffs. Unfortunately, the Fed has hinted that interest rates will remain at an elevated level in the next few months until the inflation battle is won.

Also, risks of a recession are still at an elevated level with the Fed hiking at a time when the yield curve is highly inverted. All these factors, coupled with the banking crisis, means that the economy could worsen soon. In most periods, the mortgage industry tends to worsen during a recession. Further, with insiders dumping shares, it is hard to recommend buying the Loandepot stock.