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 (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. (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 (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 (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 (OTCQB: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 (GOOG), who has just opened up its Google Plus offering, with already over 25 million users.
- Louisiana Bancorp (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 (COF)and Citigroup (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. (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 (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 (ISLE) has shown a better profit last year (0.13 cents per share), Pinnacle looks like the better bet in the medium term.