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The iShares U.S. Consumer Services ETF (IYC) was trading as low as $33.11 in March 2009. The index is currently trading at $104.80, or 216.5% above the low made in March 2009.

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In this article, I will feature two service sector stocks that have seen intensive insider buying during the last 30 days. Intensive insider buying can be defined by the following three criteria:

  1. The stock is purchased by three or more insiders within one month.

  2. The stock is sold by no insiders in the month of intensive purchasing.

  3. At least two purchasers increase their holdings by more than 10%.

1. Noodles & Company (NDLS) develops and operates fast casual restaurants.

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Insider buying by insider (last 30 days)

  • James Rand purchased 7,500 shares on July 2 pursuant to the initial public offering. James Rand currently holds 16,505 shares or less than 0.1% of the company. James Rand has been a member of the board of directors since May 2008.
  • Felix Petrilli purchased 5,000 shares on July 2 pursuant to the initial public offering. Felix Petrilli currently holds 5,000 shares or less than 0.1% of the company. Felix Petrilli has served as the Executive Vice President of Operations since May 2012.
  • Kathryn Lockhart purchased 1,470 shares on July 2 pursuant to the initial public offering. Kathryn Lockhart currently holds 5,874 shares and 41,600 options or 0.2% of the company. Kathryn Lockhart is Vice President & Controller.
  • Keith Kinsey purchased 10,000 shares on July 2 pursuant to the initial public offering. Keith Kinsey currently holds 103,038 shares and 750,100 options or 3.0% of the company. Keith Kinsey is President, Chief Operating Officer and Director of the company.
  • Paul Strasen purchased 4,943 shares on July 2 pursuant to the initial public offering. Paul Strasen currently holds 17,065 shares or less than 0.1% of the company. Paul Strasen has served as Executive Vice President, Secretary and General Counsel since January 2008.
  • David Boennighausen purchased 1,500 shares on July 2 pursuant to the initial public offering. David Boennighausen currently holds 7,204 shares or less than 0.1% of the company. David Boennighausen has served as Chief Financial Officer since July 2012.

Insider buying by calendar month

Here is a table of Noodles & Company's insider trading activity by calendar month.

MonthInsider buying / sharesInsider selling / shares
July 201330,4130
June 201300
May 201300
April 201300
March 201300
February 201300
January 201300

The company had its IPO in June.

Financials

The company reported the pro forma first-quarter financial results with the following highlights:

Revenue$81.3 million
Net income$0.9 million
Tangible book value$3.38 per share

Competition

Noodles & Company faces competition from the casual dining, quick-service and fast casual segments of the restaurant industry. These segments are highly competitive with respect to, among other things, taste, price, food quality and presentation, service, location and the ambience and condition of each restaurant. Noodles & Company's competition includes a variety of locally owned restaurants and national and regional chains who offer dine-in, carry-out and delivery services. Many of Noodles & Company's competitors have existed longer and have a more established market presence with substantially greater financial, marketing, personnel and other resources than Noodles & Company has. Among Noodles & Company's competitors are a number of multi-unit, multi-market fast casual restaurant concepts, some of which are expanding nationally. As Noodles & Company expands, it will face competition from these concepts and new competitors that strive to compete with its market segments. For example, additional competitive pressures come from the deli sections and in-store caf├ęs of grocery store chains, as well as from convenience stores and online meal preparation sites. These competitors may have, among other things, lower operating costs, better locations, better facilities, better management, more effective marketing and more efficient operations.

My analysis

The stock started trading on June 28 after the initial public offering. There have been six different insiders buying the shares and there have not been any insiders selling the shares since the IPO. All executive officers and directors as a group own 8.66% of the company. The company has more than doubled its restaurant base in the last six years to 343. I have a neutral bias for the stock currently based on the stock's significant premium to the IPO price currently.

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2. Dollarama (OTC:DLMAF) owns and operates a chain of dollar stores in Canada.

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Insider buying by insider (last 30 days)

  • Dollarama purchased 521,476 shares on June 18-28.
  • Neil Rossy purchased 75,000 shares on June 17 and currently holds 628,344 shares or 0.9% of the company. Neil Rossy is Chief Merchandising Officer.
  • John Swidler purchased 2,500 shares on June 27 and currently holds 45,500 shares or less than 0.1% of the company. John Swidler serves as a director of the company.
  • Huw Thomas purchased 3,600 shares on June 17 and currently holds 6,200 shares or less than 0.1% of the company. Huw Thomas serves as a director of the company.

Insider buying by calendar month

Here is a table of Dollarama's insider trading activity by calendar month.

MonthInsider buying / sharesInsider selling / shares
June 2013602,5760
May 201300
April 201370,492179,906
March 201300
February 201300
January 2013375,5930

The month of June has seen the most insider buying this year.

Financials

The company reported the first-quarter, which ended May 5, financial results on June 12 with the following highlights:

Revenue$448.1 million
Net income$45.6 million
Net debt$226.5 million

Competition

The Canadian dollar store industry is highly fragmented with many privately owned multi-outlet chains as well as independently-operated dollar stores. In addition to Dollarama, the largest multi-outlet dollar stores include Buck or Two Plus!, Dollar Store With More, Dollar Tree Canada and Great Canadian Dollar Store. This group, including Dollarama, on a combined basis, operates more than 1,200 stores across Canada. Most of Dollarama's multi-outlet competitors are franchise operations with significantly lower store counts than Dollarama.

The following chart illustrates Dollarama's current store count compared to its competitors' store count in Canada as of February 3, 2013:

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My analysis

There have been four different insiders buying the shares and there have not been any insiders selling the shares during the past 30 days. There are 10 analyst buy ratings, two neutral ratings and one sell rating with an average target price of $78.57. The stock is trading at a P/E ratio of 24.69 and a forward P/E ratio of 18.13. The company has a book value of $13.27 per share and the stock has a dividend yield of 0.75%. The 200-day moving average is currently at $64.55, which could be a good entry point for the stock.

Source: 2 Service-Sector Companies With Recent Intensive Insider Buying