What happened
Shares of NerdWallet (NRDS -4.66%) popped on Thursday after investors found out that its CEO had purchased shares. As of 2:50 p.m. ET, NerdWallet stock was up almost 12%.
So what
It hasn't been an easy year for NerdWallet shareholders with the stock down year to date and down 57% from its 2023 high. However, the market is suddenly feeling more optimistic. That's because CEO Tim Chen purchased 30,588 shares of NerdWallet earlier this week.
According to yesterday's filing with the Securities and Exchange Commission (SEC), Chen purchased nearly 24,000 shares on Monday and over 6,000 shares on Tuesday for an average price per share of $8.40 and $8.21, respectively.
This is called an insider transaction -- as CEO, Chen is an insider and much more aware of NerdWallet's everyday business operations than a regular person. It's common to see insider transactions related to employee stock options. But in Chen's case this week, he purchased shares at going market rates, which is always viewed as a bullish signal since he's putting his own money on the line.
Chen now owns over 695,000 shares of NerdWallet.
Now what
NerdWallet provides financial advice and generates revenue via referral fees for financial products. Investors may have been downhearted because there are a lot of uncertainties in the economy. Consequently, management only guided for 1% year-over-year revenue growth in the upcoming quarter. There just didn't seem to be much to get excited about.
Chen's buys do increase the odds that NerdWallet's business is performing well -- it's unlikely he'd use his own money to buy if he knew that business was poor. That said, insider transactions are just one piece of the puzzle and shouldn't be used to build an entire investment thesis.
