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Do you like to follow the trends of company insiders?

Insiders, naturally, work at the companies in question and have more knowledge about the firm than outsiders. When they put their own money on the line to purchase their company's shares it indicates they are bullish about the firm's future, and believe current share price is undervalued.

With this in mind we collected data on insider buying, and identified the names that have seen bullishness from company executives, with net insider purchases representing at least 1% of share float.

We then decided to look for stocks that are undervalued by levered free cash flow/enterprise value. This will provide a starting point for your analysis. This ratio gives us the money that the business can use to grow and pay dividends to shareholders. Any possibility of a dividend payout nowadays is looked at positively.

In addition to valuation, positive fundamental trends are an encouraging sign for investors. From our list, we analyzed the financials of the companies to look for those stocks with strong sales trends, comparing growth in revenue to growth in accounts receivable. Since accounts receivable is the portion of revenue not yet received, and there is no guarantee the money will ever be received, the smaller the portion of revenue made up of receivables, the healthier the company's revenue.

These stocks are seeing faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period.

The List

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

It is important to note that most analysts have a Buy rating on the stocks.

Insiders find these stocks attractive, and sell-side analysts are suggesting buying these stocks. Do you agree? Use the list below as a starting point for your analysis

1. CompX International Inc. (NYSEMKT:CIX): Manufactures and sells security products, precision ball bearing slides, and ergonomic computer support systems used in the office furniture, transportation, postal, tool storage, appliance, and various other industries.

  • Market cap at $174.08M, most recent closing price at $14.15.
  • Levered free cash flow at $20.98M vs. enterprise value at $187.74M (implies a LFCF/EV ratio at 11.18%).
  • Revenue grew by 3.83% during the most recent quarter ($37.11M vs. $35.74M y/y). Accounts receivable grew by -45.57% during the same time period ($17.21M vs. $31.62M y/y). Receivables, as a percentage of current assets, decreased from 49.58% to 35.46% during the most recent quarter (comparing 13 weeks ending 2012-09-30 to 13 weeks ending 2011-09-30).
  • Over the last six months, insiders were net buyers of 11,614 shares, which represents about 1% of the company's 1.13M share float. The top holder of the stock is Harold Simmons.

2. ClearOne Communications Inc. (NASDAQ:CLRO): Operates as a communications solutions company that develops and sells audio conferencing, collaboration, streaming media, and connectivity systems and other related products for audio, video, and Web applications.

  • Market cap at $59.64M, most recent closing price at $6.47.
  • Levered free cash flow at $6.21M vs. enterprise value at $47.16M (implies a LFCF/EV ratio at 13.17%).
  • Revenue grew by 0.52% during the most recent quarter ($11.57M vs. $11.51M y/y). Accounts receivable grew by -36.98% during the same time period ($7.67M vs. $12.17M y/y). Receivables, as a percentage of current assets, decreased from 29.75% to 19.94% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • Over the last six months, insiders were net buyers of 165,278 shares, which represents about 2.8% of the company's 5.9M share float. The top holder of the stock is Brad Baldwin.

3. Providence Service Corp. (NASDAQ:PRSC): Provides and manages government sponsored social services and non-emergency transportation services.

  • Market cap at $235.52M, most recent closing price at $18.43.
  • Levered free cash flow at $32.09M vs. enterprise value at $311.70M (implies a LFCF/EV ratio at 10.3%).
  • Revenue grew by 18.99% during the most recent quarter ($280.29M vs. $235.55M y/y). Accounts receivable grew by 12.77% during the same time period ($98.71M vs. $87.53M y/y). Receivables, as a percentage of current assets, decreased from 54.89% to 53.66% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • Over the last six months, insiders were net buyers of 675,968 shares, which represents about 6.64% of the company's 10.18M share float. The top holder of the stock is Coliseum Capital.

*Accounting data sourced from Google Finance, all other data sourced from Finviz. Insider ownership information sourced from yahoo finance

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Source: Insiders Are Buying These 3 Undervalued Stocks With Encouraging Sales Trends