Celebrate Express, Inc. (BDAY)

F2Q08 Earnings Call

January 4, 2008 8:30 am ET

With private equity commanding so much attention today, it seems that every company is hailed a buyout candidate. That said, I think buying a stock based solely on the hope that someone else will buy the company for a fat premium is a poor investment strategy.

Consider the conclusions of the following strategic alternatives processes:

Hickey and Walters (Bespoke) submit: One of the key things we watch for with small-cap companies is buying and selling of shares by insiders. While investors should not rely on an insider purchase as the sole reason to go out and buy a security, it does provide further confirmation that management or heavily invested institutions have confidence in the stock. And insider purchases of more under-the-radar small-cap names with aspirations to one day catch up with their large-cap brethren are even more intriguing.

We analyzed Form 4s (SEC filings of purchases and sales by insiders) released over the past few weeks to find small-cap stocks that have had insider buying at interesting points on the their price charts. Below are five stocks that stood out in our analysis. Green dots represent insider purchases, while red dots represent insider sales:

Hickey and Walters (Bespoke) submit: One of the key things we watch for with small-cap companies is buying and selling of shares by insiders. While investors should not rely on an insider purchase as the sole reason to go out and buy a security, it does provide further confirmation that management or heavily invested institutions have confidence in the stock. And insider purchases of more under-the-radar small-cap names with aspirations to one day catch up with their large-cap brethren are even more intriguing.

We analyzed Form 4s (SEC filings of purchases and sales by insiders) released over the past few weeks to find small-cap stocks that have had insider buying at interesting points on the their price charts. Below are five stocks that stood out in our analysis. Green dots represent insider purchases, while red dots represent insider sales.

The stock was already a busted IPO and had traded down to the $13 range when we began to research it. Our work intensified in June when the company reported disappointing earnings and dropped further, and we eventually began accumulating a position beginning in early July continuing into August in the low $12 range (it closed August at $13.05).

Celebrate Express (BDAY) has a big special dividend coming. The party store chain will pay $1.25 on April 26 to shareholders of record on April 12.

BDAY has stumbled of late, and the below chart reflects the market's disappointment. While the company has discontinued its unprofitable Storybook Heirlooms brand, it still expects a small GAAP loss in 2007. BDAY should be profitable excluding non-cash compensation expenses. I think that the company is lowballing estimates to bring down expectations, and that there is a fair chance the company will be GAAP profitable for the full year (note that the most recent quarter came in at the high end of guidance). Either way, Celebrate Express has a solid balance sheet, with over $32M in cash, a market cap of $77.85M and an enterprise value of $45.78M.

Tell us about another of your Internet holdings, Celebrate Express [BDAY].