Insider buying transactions may not be the perfect indicator of a strong investment opportunity, but they are indicative of management confidence and provide a good screen for investment ideas to investigate more closely. In this article, I'll take a look at three recent insider buying transactions that are worth a closer look for investors.
Park City Group Insiders Buy into Growth
Park City Group Inc. (NYSEMKT:PCYG) is a software-as-a-service ("SaaS") provider focused on inventory management software for supermarkets, convenience stores, and other retailers. Since profiling the company back in June of this year, the stock has risen more than 40% as investors have bought into its growth story. But, judging by some recent insider buying transactions, management seems to believe there may be further upside.
On August 28, 2013, Directors Robert Allen and Ronald Hodge have purchased more than $1.6 million worth of stock on the open market. CEO Randy Fields also accepted below-market stock in lieu of his bonus and cash compensation between May and July, according to a Form 4 filing. Combined, these moves by insiders represent a strong vote of confidence, given that there has been no selling of stock - even after its 216% rise so far this year.
Last quarter, the company reported subscription revenues that increased 19% after it added net subscribers, while other revenues increased 26% thanks to maintenance contracts and licensing revenues. Top-line gross revenues improved 21% to just over $3 million and product and service costs fell 11% as a percentage of revenue to 37%, which led to a swing from an operational loss of $361,751 to an operational profit of $243,075 year over year.
Biglari Holdings Insiders Make a Value Buy
Biglari Holdings Inc. (NYSE: BH) is a conglomerate engaged in operating and franchising restaurants, including Steak n Shake and Western Sizzlin subsidiaries, as well as allocating capital under its Biglari Capital subsidiary. With revenues that have jumped from $610 million in 2008, to more than $750 million during the trailing 12 months and net income that has consistently grown, the stock appears to trade at a discount to its peers, as seen in Figure 1 below.
Figure 1 - Valuation Comparison - Source: Morningstar
Judging by recent insider buying, management may be capitalizing on this discount by purchasing undervalued shares. Chairman and CEO Sardar Biglari purchased some 7,145 shares at prices ranging from $419.31 to $420.54 per share, according to a Form 4 filing. Other insiders have also been acquiring stock to the tune of over $3 million from a combination of open market purchasing and its oversubscribed rights offering that raised over $75 million.
Notably, Biglari has a 20% stake in Cracker Barrel Old Country Store (CBRL) and has been pushing for changes on the board level. While the restaurant chain has traded up more than 150% over the past two years, Biglari believes that additional value could be unlocked and continues to try to gain board seats. Of course, this large stake also represents a risk for investors in BH given its significant $400 million exposure to Cracker Barrel's fortunes.
Education Realty Insiders Betting on a Turnaround
Education Realty Trust Inc. (EDR) is a real estate investment trust ("REIT") that's focused on collegiate housing communities located near university campuses. Over the past six months, the REIT has fallen nearly 12% to its 52-week lows before rebounding, despite management's plans to capitalize on university budget cuts by acquiring an aggregate of $651 million in net assets over the coming years and partnering with it to build out campus housing.
Two insiders took the opportunity to acquire stock at discounted prices ranging from $8.99 to $9.44 per share. President and CEO Randy Churchey bought nearly $180,000 worth of stock on September 13, and CFO Randall Brown acquired nearly $50,000 on the same date, according to Form 4 filings made with the SEC. These transactions also follow an insider buy by Senior VP and CAO Drew Koester on August 5, of approximately $110,000.
According to President and CEO Randy Churchey in the firm's Q2 2013 conference call:
Overall, our outlook for the student housing industry remains quite positive. And we believe that our pre-leasing velocity and rate growth for this fall, which has been strong and steady, supports this opinion.
As I mentioned on the first quarter earnings call, increases in new supply seems to be matching projected increases in new demand for 2014, which bodes well for next year's leasing cycle. It is too early to forecast 2015 new supply but, so far, we think macro supply in 2015 will approximate 2014 levels, which we believe is manageable.
The opportunities for EdR to create shareholder value from both internal and external growth opportunities are outstanding. We have the team, along with the financial capacity, to seize upon these opportunities to continue growing the Company in the years to come.
Insider buying isn't a sure-fire way to make money, but it does highlight some interesting opportunities that management teams feel warrant investment. In these three examples, executives appear to be investing in opportunities they see in their own stocks, with insider knowledge that could provide an edge over the market. And for investors, these opportunities are certainly worth a closer look given this insider confidence.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.