When researching stocks to buy, or sell, investors would do well to heed the trading patterns of a company’s insiders, the directors and key employees. After all, if they don’t know how their own company is performing who will? Here we look at a few stocks for which I have seen buying by insiders, and discuss whether I think investors should do likewise:
Taser International Inc (TASR): Shares are trading at $4.28 at the time of writing, in the middle of its 52-week trading range of $3.55 to $5.10. At the current market price, the company is capitalized at $254.65 million. Earnings per share for the last year were a negative $0.08, and the company paid no dividend.
The weight of insider trades has been heavily on the sell side since 2004, when the share price was an adjusted $29. But recently, director Partovi Hadi has bought more than 39,000 shares at an average price of around $4.29. Could this decline indicate the bottoming of share price?
Taser is best known for its popular electronic control devices that are used by law enforcement agencies around the world. However, it profits have seriously lagged its promise since it came to the market in 2004. Its products have been directly responsible for 12 deaths, and the company has been sued over 170 times. This poor record may be about to change, however, and its profits increase as sales of its latest product increase.
The Axon is a tiny camera that Police Officers wear on a headband, and which records events. These recordings are held by Taser in a cloud environment (through Evidence.com), and can be used as evidence in court and against litigation. The Axon system costs $1500 per unit, and then $1200 per annum per unit for the cloud memory space. The company anticipates that revenue from Axon could amount to more than five times its core business, and has recently been sold to a further five agencies in the United States. Hadi’s purchases could be the start of an upward moving share price.
Nature’s Sunshine Products Inc. (NATR): Shares are trading at $14.35 at the time of writing, as against its 52-week trading range of $7.72 to $21.16. At the current market price, the company is capitalized at $223.27 million. Earnings per share for the last year were $0.36, placing the shares on a price to earnings ratio of 39.86. It paid no dividend. Robert Gregory, the Executive Vice Chairman, has been a consistent buyer of his company’s shares throughout August this year.
As consumers become more aware of natural produce, and the healthcare value of organic foodstuffs, companies like Nature’s Sunshine Products stand to increase sales and profits. On this basis, Gregory’s purchases seem a good move. Perhaps, though, Herbalife (HLF) would present better value for investors in the sector.
Herbalife is far larger, capitalized at $6.74 billion, and its management produces an operating margin (14.68%) of more than twice its smaller rival from a similar gross margin number (82.64% vs 80.94%). This translates into earnings per share of $2.85 last year, and Herbalife paid a dividend of $0.80 (a yield of 1.50%). With a price to earnings ratio of just 19.17, I think that Herbalife is the better buy in a sector in which Robert Gregory is clearly confident.
MGIC Investment Corporation (MTG): Shares are trading at $1.86 at the time of writing, as against its 52-week trading range of $1.59 to $11.79. Earnings per share for the last year were negative at -$2.11. A number of directors have been buying shares in the company this year, including the Chief Operating Officer, Patrick Sinks, and the Chief Finance Officer, Jon Michael Lauer.
In an economy which is weakening, with house sales dropping, mortgages falling accordingly, and foreclosures likely to continue apace, it would seem strange, perhaps, to invest in a company which specializes in private mortgage insurance. There really are only two players in this market place, and perhaps it is this fact that has prompted so many directors to buy shares. Radian Group (RDN) has a negative earnings per share of $5.87, and a book value of $8.48 per share with the shares trading at $2.21.
MGIC’s book value is $7.52 per share: Overall, very little to choose between the two companies. Whether current market dynamics are right for an investment in this sector, I am not sure. It could be years before any real housing market recovery is seen, and meanwhile the volatility in the sector would prompt me to avoid, irrespective of the few players to invest in.
Oak Valley Bancorp (OVLY): Shares are trading at $4.94 at the time of writing, as against its 52-week trading range of $4.38 to $6.32. At the current market price, the company is capitalized at $38.10 million. Earnings per share for the last fiscal year were $0.57, putting the shares on a price to earnings ratio of 8.67.
Company Directors have been buying its stock since 2008. In fact, the list of purchases and sales makes it look as if sales by directors are against the law! An astounding vote of confidence in a company that services the banking requirements of individuals and businesses in California, one of the most indebted states in America.
Oak Valley’s quarterly revenue growth of 11.90%, and operating margin of 37.76% outweigh the giant’s respective numbers of –52.60% and 1.91%. Earnings per shares are positive, as against last year’s -$1.64 for Bank of America (BAC).
For investors in the sector, and particularly those that want exposure to a niche player, than Oak Valley’s numbers stack up very well against the likes of the far larger Bank of America. Perhaps in the banking sector, smaller, more nimble, and customer friendly banks are today’s winners. Oak Valley’s directors have thought so for a long while, investors could do worse than follow suit:
Parke Bancorp Inc. (PKBK): Shares are trading at $7.41 at the time of writing, as the low end of its 52-week trading range of $6.71 to $10.40. At the current market price, the company is capitalized at $36.21 million. Earnings per share for the last fiscal year were $1.40, putting the shares on a price to earnings ratio of 5.28. Director Jeffrey Kripitz is the latest insider to buy shares in the north east United States regional banking group.
As with Oak Valley, Parke operates in a regional and small market place, which means that it can get close to its customers and provide a high level of service. Its operating margin of 58.78% is far higher than that of rival Susquehanna Bancshares (SUSQ) at 16.24%, and its earnings per share benefit accordingly ($1.40 vs $0.26).
Its price to earnings ratio is far less demanding at 5.28 as against 20.49. Susquehanna may have the better known name, but Parke have the better value for shareholders.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.