Legato Execs Buck the Bears

Ignore analysts to increase their holdings in the storage management software vendor

November 20, 2001

2 Min Read
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Insiders at Legato Systems Inc. (Nasdaq: LGTO) are paying little heed to financial analysts. The bearishness of brokerage houses has not dissuaded Legato executives from a recent binge of buying their companys stock.

In August and September, two top executives and one board member bought 263,000 shares in their company. The move is paying off -- so far. Since their late September purchases, which are the most recent they've reported to the Securities and Exchange Commission, Legato’s share price has doubled to 10.85.

The Legato insider moves come at a time when many analysts who follow technology stocks are trying to salvage their reputations, following a year in which their predictions were 180 degrees off the mark. While they were bullish, stocks headed south. And now that it’s trendy to be bearish, prices are moving upward [ed.note: who knew?].

Nine of the 12 analysts who follow Legato have rated the stock a Hold (read: Sell) for the last three months. Three analysts currently rate it a Weak Buy.

During the last week of September, CEO David Wright picked up 18,000 shares in the 5.40 to 5.50 range, increasing his holdings to 22,428 shares. “I thought storage management software was a good investment,” he says. “And obviously I’m not going to buy a competitor, so I bet on myself.”After Sept. 11, Wright figured three hot areas for information technology spending over the next few months would be contingency planning, security, and recovery software. The latter is a key part of Legato’s business.

He says Legato established a window of time that was not near the end of the quarter, so insiders could buy stock without violating SEC rules. He also points out he’s required to hold the stock at least six months.

In August and September, chief financial officer Andrew Brown bought 15,000 shares at prices from 5.15 to 8.50, increasing his stake to 26,218 shares. Also during that period, director David Strohm bought 230,000 shares at prices ranging from 5.13 to 8.18, boosting his holding to 435,000 shares. Strohm, a general partner at Greylock, says he purchased the stock for himself and his family, not for any Greylock fund.

Wright came on board a year ago as part of a management shakeup, following restated 1999 financial earnings and shareholder litigation. Some lawsuits are still pending. He believes the analysts who are still negative on the company are taking a wait-and-see approach with the new management.

Wright says his other holdings include Network Appliance Inc. (Nasdaq: NTAP) and Microsoft Corp.

(Nasdaq: MSFT).Legato closed Monday up 30 cents (2.84%) to 10.85.

— Tom Davey, special to Byte and Switch, http://www.byteandswitch.com

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