by Michael Barton
While there may be reasons unconnected to a company’s performance for a director to make a purchase or sale of its stock, such insider trades might be an indicator to a company’s fortunes going forward. Here, I look at a few stocks which have seen buying by insiders, and discuss whether I think investors should follow their lead:
- Tucows Inc (NYSEMKT:TCX): Shares are trading at $0.75 at the time of writing, in the lower half of their 52-week trading range of $0.63 to $0.93. At the current market price, the company is capitalized at $39.82 million. Earnings per share for the last year were a negative $0.06, and the company paid no dividend. Directors and major shareholders have been adding to their holdings since December last year. Tucows has total cash of $4.35 million, and debt of just $348.76 thousand, along with other assets this helps to give a book value per share of $0.47. Its business may be boosted by the potential opening of further url opportunities, and it has recently bought EPAG Domain Services from QSC AG for around $2.5 million in cash.
However, the company and its industry sector survives on very low operating margins. Tucows’ operating margin is 3.93% as against the industry average of 3.49%. It would not take a great shock to the company to push its numbers into negative territory, as its gross margin is just 24.42% against the industry average of 57.24%. At this level, the shares are no more than a speculative buy, though I find it hard to see what would drive the share price to the dizzying heights of $14 last seen in 1996.
- Park Sterling Bank Inc. (NASDAQ:PSTB): Shares are trading at $3.46 at the time of writing, at the bottom of their 52-week trading range of $3.36 to $6.30. At the current market price, the company is capitalized at $97.06 million. Earnings per share for the last year were -$0.56. Amongst recent insiders buying the stock are Larry Carroll, director, and CEO James Cherry. Regional banks are increasing business share as individuals and businesses seek a more personal and nimble approach to their requirements. Park Sterling are seeking to take greatest advantage of this through their proposed merger with Community Capital Corporation (NASDAQ:CPBK), and expand to south Carolina from its base in the north. The combined group will have over $1.2 billion in assets. It will also have $903 million in deposits, and $884 million in loans, across 21 branches in the Carolinas.
Community Capital lost $0.66 per share last year. It may be some time before the painful cost cutting measures that might be necessary to make a merger of two loss making regional banks work are off its financial accounts. For investors looking to buy stock in a regional bank, it would be better to look at Parke Bancorp (NASDAQ:PKBK), which has positive earnings per share of $1.40 last year and is trading at $7.41 at the time of writing.
- Crowdgather Inc (OTCPK:CRWG): Shares are trading at $0.28 at the time of writing, as against their 52-week trading range of $0.26 to $1.90. Earnings per share for the last year were negative at -$0.l06. CEO Sanjay Sabnani, and director James Sacks have been buying shares in their company for over a year, as the price has fallen steadily. The company is capitalized at $16.56 million. Its total assets on its balance sheet are valued at $17.989 million. On this basis, the company would appear to be a little undervalued by the market, and the assets do include cash of $4.457 million. However, they also include $8.829 million of intangible assets, and $4.36 million of goodwill.
Gross margins have jumped from 54.9% in the first quarter of 2010, to 67.5% in the second quarter of this year, and yet, net loss increased by 41% to $871,235. At this rate of loss, it will not take long to exhaust cash in the bank. For those investors looking to participate in the internet forum and online community markets, a better buy is (NASDAQ:GOOG), who has just opened up its Google Plus offering, with already over 25 million users.
- Louisiana Bancorp (NASDAQ:LABC):Shares are trading at $15.71 at the time of writing, as against their 52-week trading range of $13.92 to $16.66. At the current market price, the company is capitalized at $47.21 million. Earnings per share for the last fiscal year were $0.74, putting the shares on a price to earnings ratio of 21.12. A number of directors have been buying shares over the last few months. Louisiana Bancorp seems well placed when compared to some larger rivals. More regional than Capital One Financial (NYSE:COF)and Citigroup (NYSE:C), it is well placed to take advantage of the credit needs of companies seeking loans, together with a more personal banking service, in its operational region.
Louisiana Bancorp’s operating margin of 37.18% is roughly the same as Capital One’s (37.46%), though far better than Citibank’s 20.41%. However, quarterly revenues are growing by good margins at both Capital One (14.70%) and Citigroup (12.20%), whereas growth seems to have stagnated at Louisiana Bancorp. For this reason it is hard to see why the shares are trading at such a far higher price to earnings ratio than Capital One’s 5.48, and Citigroup’s 7.72. No more than a reasonable buy, and better value is available in the shares of Capital One and Citigroup.
- Pinnacle Entertainment Inc. (NYSE:PNK): Shares are trading at $9.97 at the time of writing, at the low end of their 52-week trading range of $9.98 to $15.57. At the current market price, the company is capitalized at $618.57 million. Earnings per share for the last fiscal year were - $0.43. CEO Anthony Sanfilippo, and CFO Carlos Ruisanchez have been consistent buyers over the last few months. Gambling and gaming may be under a cloud in the current economic climate, but Pinnacle is weathering the storm better than rivals such as Boyd Gaming (NYSE:BYD), whose gross margins of 38.03% are way off the standard being set by Pinnacle’s 74.51%. Profits have been hit at Pinnacle by its building of a new casino in Louisiana, but these costs are due to drop out next year, and the company should see a very healthy bounce in profits. For this reason, while Isle of Capri Casinos (NASDAQ:ISLE) has shown a better profit last year (0.13 cents per share), Pinnacle looks like the better bet in the medium term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.