Within the investment landscape, one compelling indicator of a company's potential that can carry significant weight is insider buying. This refers to company executives and key shareholders actively purchasing shares of the company with their own funds, and the information is publicly available.

These high-ranking executives, board members, and top shareholders are viewed as having insider knowledge of the company's internal workings, including operations, financials, and strategic plans, granting them a unique perspective unavailable to the general public. Consequently, when insiders engage in significant stock purchases, it is often interpreted as a strong signal of confidence in the company's prospects - and an indication that higher share prices are expected.

That's why two recent substantial investments - to the tune of about $4.5 million - by the CEO of one small-cap energy company are noteworthy. After a long stretch of uninspiring price action for this oil and gas name, is it finally time to buy shares? Here's a closer look.

About Highpeak Energy

Formed by the merger of HighPeak Energy and Pure Acquisition Corporation in 2020, Highpeak Energy (HPK) is an independent oil and natural gas exploration and production company, primarily focused on the prolific Midland Basin in Texas. They engage in the acquisition, development, and production of oil (CLG24), natural gas (NGG24), and natural gas liquids (NGLs). 

A component of the Russell 2000 Index (RUT), the company currently commands a market cap of $1.82 billion, and the stock offers a dividend yield of 0.7%.

Highpeak stock has been on a downward spiral, down 39% over the past 52 weeks - making it one of the worst-performing stocks in the exploration and production space over this time frame.

That said, the stock is now reasonably valued compared to some of its energy sector peers. HPK trades at a forward price/earnings ratio of 8.04, which is a discount to the sector median of 10.03. Similarly, the stock's price/cash flow ratio of 2.28 compares favorably to the broader energy group.

CEO Buys Shares Worth $4.5 Million

Jack D. Hightower, the Chairman and CEO of Highpeak, closed 2023 with two blockbuster purchases of the company's stock. On Dec. 22, Hightower bought 150,442 shares of the company at an average price of $14.3765 per share, for a total investment of $2.16 million. Then, on Dec. 29, Hightower purchased 164,030 shares at an average price of $14.7653 per share, totaling about $2.42 million. The two transactions have taken Hightower's stake in the company to 85.9 million shares, or close to 67%.

Also in 2023, Hightower bought HPK shares worth $8.28 million in September, and 131,539 shares at $22.00 each in early January.

The only other insider who bought the company's shares in 2023 was President Michael Hollis, who parted with $162,316 on Sept. 20 - the same day as Hightower's purchase $8 million purchase - to buy 9,829 shares at an average price of $16.5139 per share.

Highpeak's Q3 2023 Results

In the latest quarter, Highpeak increased its operating revenues by 69.3% from the prior year to $345.6 million, despite a drop in average prices of its two key products - crude oil ($82.87 per barrel, down 12% yearly) and NGL ($20.08 per barrel, down 45.1% YoY). The increased revenues can be attributed to Highpeak more than doubling crude oil sales volumes to 4 million barrels in Q3, and 86.1% yearly growth in volumes for NGL to 433,117 barrels in the same period.

Cash flow generation also remained solid. For the nine months ended Sept. 30, the company generated net cash from operating activities of $521.7 million, up a massive 72.3% from the year-ago period. Free cash flow arrived at $75.6 million as the company ended the quarter with a cash balance of $151.8 million (vs $30.5 million at the start of 2023). This is much higher than the current portion of its long-term debt at $90 million. 

Moreover, in Q3, the company reduced its debt burden in the near term after it announced that all of its debt had been rolled into one loan that is now due in September 2026, compared to $1 billion notes due in 2024 earlier.

Highpeak's Permian Footprint

The prospects for Highpeak look especially bright due to its presence in the prolific Permian Basin. Highlighted by Statista as the most productive oilfield in the United States, the Energy Information Administration (EIA) predicts that the region's natural gas production will increase by 6% (1.4 Bcf/d) in 2024.

Notably, Highpeak is a relatively small player in the region still. Its production capacity of 52,700 Boe/day and a portfolio of 114,000 acres leave much headroom for growth. It also offers superior pricing compared to its much larger peers in the region. With a production profile of 84% crude, 9% NGLs, and 7% natural gas, HPK had a realized price of $71.27/BOE in Q3 - topping larger peers like Devon Energy (DVN), Diamondback Energy (FANG), and takeover target Pioneer Resources (PXD). 

Further, Highpeak has only 225 wells currently in operation with 25 wells under development. Once these wells are developed, it will lead to an 11% expansion in producing wells, which will allow the company to easily hit its production target of 57,000 barrel a day.

Looking ahead, analysts are forecasting forward revenue and EPS growth of 84.69% and 74.11%, respectively, for Highpeak - both of which are well above energy sector medians.

What Do Analysts Expect for HPK Stock?

Overall, analysts remain optimistic about Highpeak stock. With just 3 analysts in coverage, the average rating is “Moderate Buy” with a mean target price of $23.07, indicating an upside potential of about 61.6% from current levels. Out of the 3 analysts covering the stock, 2 have a “Strong Buy” rating and 1 has a “Strong Sell” rating.