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 is no tomorrow. Insiders buy for one reason: They are signaling that they have confidence in the company's future performance. Insider buys are particularly important for small-cap (market cap < $2 billion) companies, which are usually not followed by analysts. 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 trading at more than $1 per share or have 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. I have filtered out those transactions with a total value of less than $10,000.
Ceres (CERE) is a agricultural chemicals company. It has a market cap of $219.80 million. According to today's SEC filing, Ceres has one insider who purchased a total of 8,000 shares at the total value of $79,458. Its price/book ratio is 2.76. One concern is the company isn't profitable at this point. The company has $79.27 million cash on its balance sheet. Its debt burden is $5.74 million, or approximately 7.50 in debt/equity ratio. The trading volume has been consolidating recently. This month, 0.34 million shares are being shorted. Comparing to 0.33 million shares shorted over the previous month, the shared short has increased by 3%. The short ratio of Ceres is 29.60, accounting for 2.90% of floating shares. Such a high short ratio means short squeeze could easily happen with suitable news.
Kingsway Financial Services (KFS) is a property and casualty insurance company. It has a market cap of $31.80 million. According to today's SEC filing, Kingsway Financial Services has one insider who purchased a total of 6,375 shares at the total value of $15,427. Its price/book ratio is 1.02. The company is currently losing money operationally. Its business has to turnaround for the situation to become more positive. The company had a net income of -$13.34 million and EBITDA of -$31.74 million on revenue of $186.06 million. The company has $75.98 million cash on its balance sheet. Its debt burden is $60.36 million. Over the past 10 days, Kingsway Financial Services has seen significantly higher-than-average trading volume. I may put it on my watch list, but definitely not on top of the list.
Marchex, Inc. (MCHX) is a marketing services company. It has a market cap of $139.40 million. The company pays a dividend of 2.10%. According to today's SEC filing, Marchex has one insider who purchased a total of 2,500 shares at the total value of $10,800. The PEG ratio is slightly above one, not much a concern of valuation. Marchex has an enterprise value/EBITDA ratio of 11.26. This is slightly on the expensive side. It has a profit margin of 1.09%. The company had a net income of $1.40 million and EBITDA of $7.64 million on revenue of $153.13 million. The company has $41.29 million cash on its balance sheet and no debt. It operating cash flow is $18.22 million, and its free cash flow is $61.57 million. Recently, the stock has not traded actively. This month, 2.56 million shares are being shorted. The short ratio of Marchex is 19.00, accounting for 11.30% of floating shares. This is an interesting pick with speculative value and large short-squeeze potential.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.