3 Stocks With Recent Intensive Insider Buying
By Markus Aarnio : Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Despite fiscal-cliff fears, the U.S. stock market could rise 10% in 2013, say Wall Street's top strategists. I believe the best way to participate in this advance could be following what the insiders are buying.
There have been studies showing that when insiders accumulate a stock intensively, the stock can be expected to outperform the market during the next six months.
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Intensive insider buying can be defined by the following three criteria:
- The stock is purchased by three or more insiders within one month.
- The stock is sold by no insiders in the month of intensive purchasing.
- At least two purchasers increase their holdings by more than 10 percent.
In this article I will feature three stocks that met these three criteria of intensive insider buying during the last 30 days.
1. Francesca’'s Holdings Corporation (FRAN), through its subsidiary, Francesca’'s Collections, operates a chain of retail boutiques under the francesca'’s collections brand in the United States. Its retail boutiques offer apparel, jewelry, accessories, and gifts to female customers.
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Insider buys
- Richard Emmett purchased 5,000 shares on December 19 and currently holds 10,000 shares or less than 0.1% of the company.Richard Emmett has served as a member of the company's board of directors since November 2009.
- Marie Toulantis purchased 2,000 shares on December 19 and currently holds 2,000 shares or less than 0.1% of the company.Marie Toulantis has served as a member of the company's board of directors since July 2012.
- John De Meritt purchased 10,000 shares on December 12 and currently holds 510,000 shares or 1.1% of the company. John De Meritt is one of the founders of the company and has served as President and Chief Executive Officer since March 2007 and has been a member of the board of directors since the inception of the company.
- Khalid Malik purchased 4,233 shares on December 12 and currently holds 59,592 shares or 0.1% of the company. Khalid Malik has served as the company's General Counsel since October 2009.
- Neill Davis purchased 3,000 shares on December 12 and currently holds 68,000 shares or 0.1% of the company. Neill Davis has served as the company's President since August 2012 and a member of Board of Directors since May 2007.
Financials
The company reported the third-quarter financial results on December 5 with the following highlights:
| Revenue | $72.0 million |
| Net income | $10.8 million |
| Cash | $12.9 million |
Outlook
- For the fourth quarter ending February 2, 2013, net sales are expected to be between $82.5 million and $83.5 million assuming a mid-single digit comparable boutique sales increase and the opening of one additional new boutique. Earnings per diluted share are expected to be in the range of $0.27 to $0.28.
- For the full fiscal year ending February 2, 2013, net sales are expected to be in the range of $292.2 million to $293.2 million assuming a low double digit comparable boutique sales increase and the opening of 76 new boutiques and an outlet boutique. Earnings per diluted share are expected to be in the range of $0.99 to $1.00.
Competition
Francesca's competitors include ANN Inc (ANN) and Urban Outfitters(URBN). Here is a table comparing these companies.
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Francesca's is growing faster than the industry.
My analysis
The stock has a $15 price target from the Point and Figure chart. There have been five insider buy transactions and there have not been any insider sell transactions during the last 30 days. There are 12 analyst buy ratings, three neutral ratings and 0 sell ratings with a average target price of $32.92. The stock is trading at a P/E ratio of 28.34 and a forward P/E ratio of 20.63. I have a neutral bias for the stock currently based on the mixed fundamental and technical picture.
2. Cytori Therapeutics (CYTX) is developing cell therapies based on autologous adipose-derived regenerative cells [ADRCs] to treat cardiovascular disease and repair soft tissue defects. Cytori's scientific data suggest ADRCs improve blood flow, moderate the immune response and keep tissue at risk of dying alive. As a result, Cytori believes these cells can be applied across multiple "ischemic" conditions. These therapies are made available to the physician and patient at the point-of-care by Cytori's proprietary technologies and products, including the Celution system product family.
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Insider buys
- Marc Hedrick purchased 10,000 shares on December 19 pursuant to apublic offering. Marc Hedrick currently controls 475,338 shares or 0.7% of the company. Dr. Marc Hedrick was appointed President of the company in May 2004.
- David Rickey purchased 32,000 shares on December 19 pursuant to apublic offering. David Rickey currently controls 301,569 shares or 0.5% of the company. David Rickey has served as a Director of Cytori Therapeutics since November 1999.
- Lloyd Dean purchased 25,000 shares on December 19 pursuant to apublic offering. Lloyd Dean currently controls 61,000 shares or 0.1% of the company. Lloyd Dean joined Cytori Therapeutics as a director in November 2010.
Financials
The company reported the third-quarter financial results on November 8 with the following highlights:
| Revenue | $1.3 million |
| Net loss | $11.2 million |
| Cash | $17.6 million |
| Debt | $25.0 million |
Cytori Therapeutics announced on December 14 the sale of 7,020,000 shares of its common stock in an underwritten public offering at a price to the public of $2.85 per share. The net offering proceeds to Cytori from the sale of the shares are expected to be approximately $18.5 million.
Upcoming milestones
- During the third quarter the company initiated enrollment in ATHENA, the U.S. clinical trial of Cytori's cell therapy for refractory heart failure; the trial is on track to fully enroll by mid-2013.
- During the third quarter the company also resumed enrollment in ADVANCE, a European acute myocardial infarction trial; primary emphasis of the trial continues to be completion of country and site clearances. If the company is successful in this trial, it will have thefirst cell therapy approved for cardiovascular disease anywhere in the world.
My analysis
The stock has a $1.5 price target from the Point and Figure chart. There have been three insider buy transactions and there have not been any insider sell transactions during the last 30 days. There are two analyst buy ratings, 0 neutral ratings and 0 sell ratings with a average target price of $10.00. I have a neutral bias for the stock currently based on the lack of near-term catalysts for the stock.
3. Silver Bay Realty Trust Corp (SBY) is a newly organized Maryland corporation focused on the acquisition, renovation, leasing and management of single-family properties. The company intends to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes.
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Insider buys
- David Miller purchased 12,500 shares on December 19 pursuant to ainitial public offering. David Miller currently holds 12,500 shares or less than 0.1% of the company. David Miller is President and CEO of the company.
- Thomas Siering purchased 25,000 shares on December 19 pursuant to a initial public offering. Thomas Siering currently holds 25,000 shares or less than 0.1% of the company. Thomas Siering serves as a director of the company.
- Irvin Kessler purchased 300,000 shares on December 19 pursuant to a initial public offering. Irvin Kessler currently controls 2,198,189 shares or 5.9% of the company. Irvin Kessler serves as a director of the company.
- Christine Battist purchased 500 shares on December 19 pursuant to ainitial public offering. Christine Battist currently holds 12,662 shares or less than 0.1% of the company. Christine Battist is CFO and Treasurer of the company.
- Timothy O'Brien purchased 1,250 shares on December 19 pursuant to a initial public offering. Timothy O'Brien currently holds 1,250 shares or less than 0.1% of the company. Timothy O'Brien is General Counsel, Secretary of the company.
- Brian Taylor purchased 25,000 shares on December 19 pursuant to ainitial public offering. Brian Taylor currently holds 25,000 shares or less than 0.1% of the company. Brian Taylor serves as a director of the company.
- Irwin Freydberg purchased 3,000 shares on December 19 pursuant to a initial public offering. Irwin Freydberg currently holds 15,162 shares or less than 0.1% of the company. Irwin Freydberg is Chief Operating Officer of the company.
Financials
The company reported the first nine months financial results with the following highlights:
| Revenue (Pro Forma) | $8.4 million |
| Net loss (Pro Forma) | $16.5 million |
| Cash (Pro Forma) | $231.9 million |
| Net tangible book value (Pro Forma) | $17.90 per share |
Outlook
A September 2012 Zillow Home Price Expectation Survey shows that professional forecasters expect home price to rise in future periods. The survey was compiled from 113 responses by a diverse group of economists, real estate experts and investment and market strategists. The chart below shows the forecasted, cumulative home price changes by quartile among the survey panelists. These survey panelists forecast additional increases in U.S. home prices by 2016, ranging from an average forecast of 5.8% for the most pessimistic quartile of projections to an average forecast of 24.2% for the most optimistic quartile of projections.
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My analysis
The stock started trading on December 14. There were seven insider buytransactions and there were no insider sell transactions during the IPO. The company sold 13.25 million shares in the IPO and currently has 37.37 million shares outstanding. The insiders have a 90-180 day lock-up period before they can sell the shares. The stock has not traded below the net tangible book value of $17.90 per share since the IPO.
Source: seekingalpha.com
I find that the best indication of how undervalued a stock is is the price to sales ratio or what is commonly referred to as market cap.
ReplyDeleteSimply stated. If a company does 1 billion in annual sales but it has a market cap of 100 million dollars than the price to sales ratio is ten to one. In other words the market is valuing a company that does 1 billion dollars in annual sales at just 100 million dollars. But what does this mean. It means everything if you are a classic value investor.
Here is a perfect example of why the price to sales ratio is so very important if you are a value investor in stocks. If our 1 billion dollar company is breaking even that is they are not making a profit nor losing money. Lets say the company has 250 millon dollars in long term debt and 80 million dollars in cash. We will say they are in the food business they make a wide aray of food products. Maybe the company did a buyout of another company a few years ago that did not work out as well as expected. So thats why the company is having trouble making a profit but things now seem to be moving in the right direction. If I purchase shares in the company for say 10 dollars. And over a five year period the company improves their earnings performance to the point where their now earning say 60 million dollars on sales of one billion two hundred million dollars. Thats a profit margain of 5%. If the stock were to now trade at twenty times earnings that would now mean that the price of the stock would be at 120 dollars a share or another way to put it the marketcap is now one billion two hundred million instead of 100 million.
The problem for me is not that this investment method is not effective it works great. I purchased seaboard stock back in 2000. I think it was for 190 dollars a share around that. I following the exact method I describe above. I sold my shares about five years later for 2500 dollars yes thats correct 2500 dollars or more than twelve times what I paid for the shares. Seaboard was profitable when I bought it and profitable when I sold it. The stock was just a great undervalued stock that was overlooked by investors.
Like I was saying before the problem is not with this investment method. Its that stocks like seaboard are very rare indeed theirs just not a whole lot of quality companies out their selling a very low price to sales ratios. Another issue that I have been having is when a company of decent quality trades at a very low price to sales ratio its not long before a private equity firm or the family of a family owned company takes notice and usually makes a low bid for the shares and takes the company private preventing me from realizing the enormous gains that mght have been possible had I not been forced to sell my shares out to a party that was making a very unfairly low offer for the shares of the company.
Another thing to keep in mind when it comes to value stocks that have a low price to sales ratio that could give the buyer a tremendous advantage is this.
I mentioned earlier that are food company had 80 million dollars of cash on their balance sheet now if the company choose to they could buy back a large chunk of their stock maybe 30 million dollars worth of the shares outstanding it would only cost them 30 million dollars they still would have 50 million dollars of cash left on their balance sheet. This means that under the positive earnings outlook for the company the stock price could even be much higher than 120 dollars a share. If the company were to retire a large percentage of their exsisting shares in a stock buyback.