NMFC

New Mountain Finance ($NMFC): Why Shares Ignore $13M+ Insider Buying Spree

08/12/2025 20:19

New Mountain Finance ($NMFC) is capturing investor attention due to a remarkable pattern of insider buying that began in November 2024 and continues through August 2025. The activity centers around Director Steven Klinsky's unprecedented purchasing spree, raising questions about whether management sees value that the market is missing. $NMFC is a $1.06 billion market cap Business Development Company (BDC) specializing in middle-market lending and private equity investments. Operating under New York-based New Mountain Capital, the company focuses on 'defensive growth' sectors including software, healthcare, and business services, managing a portfolio worth approximately $3 billion across 124 companies. The insider buying story begins in November 2024 when Klinsky executed what can only be described as a buying blitz. Over 24 separate transactions from November 4 through December 17, he accumulated over 1.5 million shares worth more than $13 million. Purchase prices ranged from $10.68 to $11.74 per share, utilizing various vehicles including personal funds, the Steven B. Klinsky 2024 Revocable Trust, and family member accounts. The timing was particularly noteworthy. Klinsky's buying intensified as shares declined to $9.78 in early November, approximately 15% below the July 2024 peak of $11+. This aggressive accumulation at depressed levels suggests strong conviction in the company's fundamental value proposition. The insider buying pattern continued into 2025. Director David Ogens purchased 20,000 shares across four transactions in March, while August 2025 saw additional purchases by CFO Kris Corbett (750 shares at $10.14) and Ogens (26,000 shares at $10.24). These consistent purchases across multiple executives indicate broad management confidence. However, the market remains unconvinced. Despite massive insider accumulation, shares continue to trade sideways in the low $10 range. The stock even declined to $8.83 in April 2025, and currently trades around $10.23—roughly in line with Klinsky's average purchase price. This disconnect stems from persistent earnings headwinds. Q2 2025 revenue fell 11.7% year-over-year to $83.49 million, while earnings per share dropped 11% to $0.32 from $0.36. The company has missed or barely met consensus estimates for four consecutive quarters, pressuring investor confidence despite management's buying activity. Yet $NMFC offers compelling value propositions. The dividend yield stands at an attractive 12.2%, with quarterly payments of $0.32 per share supported by a dividend protection program extending through 2026. The stock trades at 0.82x book value, representing an 18% discount to net asset value. Portfolio quality metrics remain solid. Approximately 95% of investments carry 'green' (lowest risk) ratings, with only 1.4% of the portfolio on non-accrual status. The loan-to-value ratio maintains a conservative 43-44%, while the company has strategically shifted toward first-lien secured loans, now comprising 78% of total investments. Positive catalysts include continued insider buying, active share repurchases ($9.6 million in Q2 2025), and shareholder-friendly initiatives like permanently reducing the management fee from 1.4% to 1.25%. The company also secured a third SBA license in July 2025, expanding lending capacity. However, significant risks persist. The dividend payout ratio exceeds 168% of current earnings, raising sustainability questions without earnings recovery. The debt-to-equity ratio of 1.17x indicates high leverage, while a current ratio of 0.30 suggests potential short-term liquidity constraints. Looking ahead, the optimistic scenario involves interest rate cuts and M&A market recovery driving middle-market lending demand, potentially validating insider conviction. The base case anticipates continued sideways trading with dividend maintenance but limited price appreciation. The bear case involves continued earnings deterioration potentially forcing dividend cuts, with shares vulnerable to retesting the $8.80 lows. $NMFC presents a classic value versus momentum dilemma. While high dividend yield and discount valuation attract income-focused investors, persistent earnings weakness explains the market's skepticism despite unprecedented insider buying. Investors should approach with a long-term dividend-focused strategy rather than expecting immediate price appreciation.