Small-cap companies are usually not followed by analysts, which makes choosing the right small cap (market cap < $500 million) more difficult. Choosing the right small companies to invest can be daunting; however, insider purchases provide a good starting point. Insiders, especially executives and directors of small companies, tend to know their company very well. Tracking their stock purchase activities can generate lucrative returns.
Below is a list of notable insider purchases of small-cap stocks filed at the Securities and Exchange Commission today. Following Seeking Alpha's small-cap policy, all the stocks in the table are greater than $1 per share or have at least a $100 million market cap.
I have written a short analysis of each company's financial records. However, these are not buying and selling recommendations. It is also important to pay attention to how much the insiders buy, especially with respect to the size of their company and their regular income. I have filtered out those transactions with a total value of less than $10,000. As Peter Lynch pointed out in his book, "One Up On Wall Street," insiders sell for various reasons, which is usually not very informative unless they are dumping shares like there's no tomorrow. Insiders buy for one reason: They are signaling that they have confidence in the company's future performance. Of course, insiders could be wrong. It is nevertheless a good starting point to add those stocks to your watch list.
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Build-A-Bear Workshop (BBW) is a services company, specifically in the industry of toy and hobby stores. It has a market cap of $69.26 million. According to today's SEC filing, Build-A-Bear Workshop has one insider who purchased a total of 3,278 shares at the total value of $13,308. Its price is near the bottom, at around 4.47% off its 52-week low. This company's value seems too rich with a relatively high PEG ratio of 4.80. One concern is the company isn't profitable at this point.
Ambassadors Group (EPAX) is a services company, specifically in the industry of education and training services. It has a market cap of $87.88 million. According to today's SEC filing, Ambassadors Group has one insider who purchased a total of 20,663 shares at the total value of $103,191. The well-above 1 PEG ratio suggests it's somewhat overvalued. I believe Ambassadors Group's operating margin of 6.04% is acceptable. I believe the company has a decent dividend payout that provides a minimum margin of safety. It can be put on a watch list.
New Century Bancorp (NCBC) is a financial company, specifically in the industry of regional and Mid-Atlantic banks. It has a market cap of $33.87 million. According to today's SEC filing, New Century Bancorp has one insider who purchased a total of 3,000 shares at the total value of $14,730. Its stock price is about 4.00% below its 52-week high, usually a positive technical indicator on the company. I like New Century Bancorp's operating margin of 25.30%, which is a good sign for the company's financial health. Despite the insider purchase, I'm not very positive about the company's prospects.
PharMerica Corporation (PMC) is a services company, specifically in the industry of drug stores. It has a market cap of $300.28 million. According to today's SEC filing, PharMerica has one insider who purchased a total of 5,000 shares at the total value of $47,985. Its price is near the bottom, at around 15.39% off its 52-week low. I like this company with its undervalued stock, reflected in a low PEG ratio. I don't like PharMerica's operating margin of 3.59%, a sign of the company's shaky financial health. I may put it on my watch list, but definitely not at the top of the list.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.