What do all value investors have in common? After they buy a stock, the price almost always goes down right away. I am definitely no exception. I often joke around that in order to make precise timing decisions, just buy my stocks two weeks after I do. But sometimes, stocks become so cheap that their prices simply do not make any sense. I believe that this is the case with KSW, Inc. The company furnishes and installs heating, ventilating, and air conditioning (HVAC) systems; and process piping systems for institutional, industrial, commercial, high-rise residential, and public works projects primarily in the state of New York. The price of this stock kept going down after I bought it. Refer to my analysis for more information about this company.
Click to enlargeThe main reason why KSW’s stock price keeps declining is because Floyd Warkol, Chairman and Chief Executive Officer, keeps selling shares of the company. Who wants to be on the other side of the trade? I do, because I know that he is almost done, and the stock just closed at $2.73 per share. The company has no debt and $2.42 per share of cash and marketable securities on the balance sheet. You might be thinking that the company must be losing money or something. But it is not. Not only is it profitable, it is the top HVAC contracting company in New York. Even Donald Trump used them and you know that Trump doesn’t just hire anybody.
Warkol was granted stock options in 1995 under the company’s employee stock option plan. If these options are not exercised, they will expire on December 31, 2010. The CEO started selling his shares at the end of March 2010. His continuous selling put downward pressure on the stock price and kept other investors from buying. Very few investors have the courage to buy the stock of a company when the CEO is selling. It doesn’t matter to them that he still owns 10 percent of the company and intends to hold shares for the long term.
As of July 16, 2010, he sold 89,100 shares out of 105,000 shares, which means that he only has 15,900 shares left to sell. He can easily be finished within a month. When he is done, guess what is likely to happen to the price of this stock? Buckle up and enjoy the ride.
Disclosure: I, or persons whose accounts I manage, own shares of KSW, Inc at the time of this posting. This posting is not a solicitation to buy or sell securities. Neither Mariusz Skonieczny nor Classic Value Investors, LLC, is responsible for any losses resulting from purchasing shares of KSW, Inc. You are advised to consult your financial advisor or conduct the due diligence yourself.