Insider-Alerts'  Instablog

Everyone knows that actions speak louder than words. At insider-alerts.com we watch those actions daily (with the assistance of a custom developed system) and interpret them to give us an advantage in finding companies to invest in, or stay away from. When the insiders paint a picture that shows the market is missing something important, we act on it. We fully reject the Efficient Market Hypothesis. We've found frequently enough, even after an insider makes a telling purchase or sale that there is pricing inefficiency in the markets. We act to capitalize on those situations.

Synacor's (SYNC) story is fairly well known as there have been a number of articles on Seeking Alpha about the company over the past year since it's gone public. To summarize, Synacor IPO'd in February 2012 at $5, the infamous Jonathan Lebed pumped it up to $18 by July, and since then, the stock has been on a steady decline to $3/share, where it sits today.

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Synacor provides multi-platform "start page" services for consumer electronics companies, most often cable and telecom operators. Using Synacor's platform, the cable/telecom operators can provide a unified interface to many services including user authentication, billing, and TV Everywhere. Synacor makes its money through the deals with the consumer electronics companies, and also through search/advertising via Google. Most recently the company has signed on to a number of joint ventures with Asia-based partners.

A quick review of some fundamentals:

On the technical side, since January 1, the stock is down nearly 50%. As of February 28, short interest is 2.1 million shares, or roughly 1/7 of the float.

As usual, our interest rises when we begin to look at the insider transactions. To start, it needs to be noted that insiders own 65% of all the company shares. This is a tremendous amount.

On March 14 and March 15, directors Jordan Levy and Michael Montgomery purchased 33,000 shares at $2.99/share and 40,000 shares at $3.02 respectively.

Of particular note is CEO Ron Frankel. On March 14, Frankel made a 13G filing which indicated his ownership of 1,789,823 shares representing 6.4% of the outstanding shares. This is up significantly since his last Form 4 filing on January 16 where his ownership was indicated to be 1,177,218 shares. So, over the past two months, Frankel acquired roughly 600,000 shares - raising his ownership by more than 50%.

Current earnings estimates for 2013 are at 10 cents/share compared to the 14 cents/share turned in for 2011. However, we believe that at this time, expectations are set extremely low, and exaggerates the impact of some of the caution which the company exhibited with the latest earnings announcement.

To summarize, our ownership of the stock and optimism for the company is based on:

1. Insider ownership and recent purchases.

2. Profitable company. Year over year revenue growth of 34% (2012 vs. 2011) and 38% (2011 vs. 2010) for the past two years.

3. Strong balance sheet with minimal debt and net cash of about $1.30/share.

4. Extremely low expectations with possibility for upside surprises through the Asia joint ventures.

5. People were willing to pay $18/share (for whatever reason), with little difference in the fundamentals only 9 months ago.

6. Stock is trading at 40% off the IPO price of a year ago, and again, no significant difference in the fundamentals. Revenue growth continues to be strong.

7. At $3/share, we see at most 20% downside with an upside potential of 100% to 200% within the next 12 to 18 months. Taking out the net cash, the market is valuing the business itself at only $1.70/share - a profitable company with $120 million in annual sales growing in excess of 30% a year. We view this as deep value.

Bottom line, the stock has been decimated likely for technical reasons, while the company is still strong and growing. The insider ownership and recent purchases tell us that. The market has punished the stock and company far too much.

In general, we believe in never buying your entire position all at one time. Buy a half, a third, or a quarter of what you really ultimately want. If the price goes lower and the investment thesis still holds, then buy more. In most cases, based on what we look at when deciding on an investment, the probability is that we aren't catching the stock at the absolute bottom where it's immediately going to take off after we buy. That being the case, we've learned to never take a full position with the initial purchase. No matter how low the price, it can always go lower. So, instead of possibly being unhappy about a losing position right after purchasing, it becomes an opportunity for continued close monitoring and getting in to your desired position at a lower cost.

Insider-Alerts does not make any buy or sell recommendations with respect to the stock or companies we write about. The reader accepts full liability and responsibility for acting on information we provide and any losses which may result.

Insider-Alerts does not receive any compensation whatsoever for the articles we write and research we publish. We have no relationship of any kind with either the companies we report on, or the forum which we provide our research.

Insider-Alerts may hold positions in the securities of the companies we write about, and if so, that position is disclosed.

Insider-Alerts provides a free daily report of the top insider trades and is available via the Subscribe link on our homepage at insider-alerts.com

Disclosure: I am long SYNC.

Additional disclosure: We own shares of SYNC and are looking to acquire more on further continued price weakness.

Everyone knows that actions speak louder than words. At insider-alerts.com we watch those actions daily (with the assistance of a custom developed system) and interpret them to give us an advantage in finding companies to invest in, or stay away from. When the insiders paint a picture that shows the market is missing something important, we act on it. We fully reject the Efficient Market Hypothesis. We've found frequently enough, even after an insider makes a telling purchase or sale that there is pricing inefficiency in the markets. We act to capitalize on those situations.

You just have to take a quick glance at the stock chart of Electromed (ELMD) to see that it's had a rough time over the past two years. The company has had its difficulties through the recession and there's no sign that things have turned the corner yet.

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However, there comes a time when you see actions taking place and it becomes clear that the changes implemented will lead to a rebound. The investor's job is to figure out when is the appropriate time to jump in. Do you want to make your move when you see the changes taking place before the rest of the crowd realizes? Or do you want to wait until you see numbers posted that confirm the changes are having the desired effect, and the stock possibly already on the move higher?

Our approach with Electromed was simple. We didn't look extremely deeply into the numbers, simply that they weren't losing money hand over fist, and that the balance sheet remained healthy. What caught our attention was (as always) the insider purchasing, along with key personnel changes.

As far as the business - Electromed produces the SmartVest airway clearance system. It's a real product, it has a real customer base, and it generates real sales and profits. If you have interest, you can jump over to smartvest.com and read all about it.

We leveraged the research which was done for us at no cost by Zacks Investment Research Senior Medical Device / Diagnostics Analyst Brian Marckx - as he has posted regular updates on Seeking Alpha for some time. If you go and check his prior posts/coverage, even with his last update in May 2012, he had good forward looking estimates and stock price targets out to 2015. Below I've provided Brian's May 2011 Valuation and Recommendation followed by his May 2012 statement, afterwhich coverage stopped (at least as far as being posted to Seeking Alpha).

May 2011

Valuation and Recommendation

We are raising our price target on ELMD due to a combination of moving our 2011 EPS estimate from $0.13 prior to Q3 results to $0.15 currently and comparable valuations moving higher since our last update. We are also moving our investment recommendation from Hold to Outperform due to the discrepancy between ELMD's current share price ($3.51) and our new target ($5.50).

We continue to value Electromed using Hill-Rom's (HRC) long-term PE/G ratio as a comparable. Hill-Rom's long-term PE/G currently sits at 1.64 (up from 1.32 since our last update on ELMD). We model ELMD to post EPS of $0.34 in 2014, implying four-year CAGR of 22.4%. Backing this growth rate into the 1.64 PE/G results in a near-term P/E multiple of 37x. We look for ELMD to earn $0.15/share in fiscal 2011 which values the company at approximately $5.50 per share.

May 2012

Valuation and Recommendation

We now look for EPS of approximately $0.09 (excluding expected severance expenses in Q4) in fiscal 2012, down from $0.12 prior to Q3 results. EPS in our out-years have moved from $0.25 to $0.21 in 2013, $0.33 to $0.30 in 2014, and $0.41 to $0.38 in 2015.

We continue to value Electromed using Hill-Rom's (HRC) long-term PE/G ratio as a comparable. Hill-Rom's long-term PE/G currently sits at 1.31. We model ELMD to post EPS of $0.38 in 2015, implying a four-year CAGR of 31%. Based on a 1.31 PE/G, ELMD should trade at about 41x 2012 EPS - or ~ $3.70/share. We are moving our price target from $4.00/share to $3.70. The stock currently trades at about $2.50. We are maintaining our Outperform rating.

So, Zacks did all the research, things turned South, we have the stock price decimated, and Zacks disappeared. The company has been left for dead by both Zacks and investors.

Our view is that Electromed is extremely small, the EPS numbers used as the basis for the Zacks estimates are miniscule, and going forward with even minimal profitability the company will easily eclipse these estimates. Assuming the company rights itself and gets back on a path to growth (which we believe will happen), the share price will go significantly higher than the $1.40/share where it sits today and likely above the price targets Zacks previously indicated.

As for the personnel changes mentioned earlier, there have been two high-level additions. We have Kathleen Skarvan who was named CEO in November and Carlo Micheletti who was named General Manager of Electromed's international business just a few weeks ago. Both of these folks have extensive industry experience and are expected to help Electromed get back on track with increased sales and margins going forward.

Now, on to the insider stock purchases...

Our system shows the following insider purchases since January 2012:

Kathleen Skarvan = CEO, Stephen Craney = Director, William Eckles = Director, Darrel Kloeckner = Director, Thomas Hagedorn = Director

In addition to the insider purchases over the past year indicated above, insiders hold over 40% of the outstanding shares. So, of the roughly 8.1 million shares outstanding, there's only about 5 million in the float.

In general, we've seen the shares of most companies bottom during December with the year end tax selling. However, for Electromed, shares continued moving lower as the earnings announcement two weeks ago were not impressive with a minor loss announced.

With the key personnel changes, we believe that we've hit bottom as far as the company performance goes. Maybe we'll see one more quarter of weakness, but we expect the back half of 2013 to be stronger as we see the results of new business plans and strategies being put into place now.

CEO Kathleen Skarvan commented in the earnings announcement:

While our results this quarter are disappointing, we are gaining momentum and positioning ourselves for sales growth going into fiscal year 2014. Our positive momentum is attributable to our re-branding strategy, hiring a veteran International sales manager focused on broadening our footprint in Latin America and the Middle East, our U.S. sales force being fully staffed in all strategic regions and realigning our reimbursement function to create a stronger focus on payer contracts and greater efficiencies. Additionally, it is important to highlight the strength of our balance sheet, which is strong enough to support us while we work through our current challenges.

We've been impressed by what Ms. Skarvan has stated since taking the CEO position in November, as well as the push to expand international sales. Based on her own willingness to purchase shares since coming onboard, we're willing to give her lots of latitude as it's clear that her priorities to increase sales and margins are well aligned with increasing shareholder value - for all shareholders.

As mentioned above, Electromed has about 8.1 million shares outstanding with average daily trading volume at an extremely thin 5,000 shares. As a result, being very thinly traded, the bid/ask spread can be 5 cents or 10 cents at times. This is quite large for a stock trading at under $1.50/share. Anyone who considers purchasing or selling the stock should do themselves a favor, and before trading, review how the stock trades on a day to day basis, always place a limit order, and even go so far as considering buying/selling in small batches and/or utilizing All or None (AON) on your orders.

In general, we believe in never buying your entire position all at one time. Buy a half, a third, or a quarter of what you really ultimately want. If the price goes lower and the investment thesis still holds, then buy more. In most cases, based on what we look at when deciding on an investment, the probability is that we aren't catching the stock at the absolute bottom where it's immediately going to take off after we buy. That being the case, we've learned to never take a full position with the initial purchase. No matter how low the price, it can always go lower. So, instead of possibly being unhappy about a losing position right after purchasing, it becomes an opportunity for continued close monitoring and getting in to your desired position at a lower cost.

Insider-Alerts does not make any buy or sell recommendations with respect to the stock or companies we write about. The reader accepts full liability and responsibility for acting on information we provide and any losses which may result.

Insider-Alerts does not receive any compensation whatsoever for the articles we write and research we publish. We have no relationship of any kind with either the companies we report on, or the forum which we provide our research.

Insider-Alerts may hold positions in the securities of the companies we write about, and if so, that position is disclosed.

Insider-Alerts provides a free daily report of the top insider trades and is available via the Subscribe link on our homepage at insider-alerts.com

Disclosure: I am long ELMD.

Additional disclosure: We intend to buy more on any further share price weakness.

Everyone knows that actions speak louder than words. At insider-alerts.com we watch those actions daily (with the assistance of a custom developed system) and interpret them to give us an advantage in finding companies to invest in, or stay away from. When the insiders paint a picture that shows the market is missing something important, we act on it. We fully reject the Efficient Market Hypothesis. We've found frequently enough, even after an insider makes a telling purchase or sale that there is pricing inefficiency in the markets. We act to capitalize on those situations.

Innodata (INOD) came to our attention as insider purchasing picked up during the summer of 2012. The shares had fallen from the $5 to $7 range down to a new range of $3 to $4. Since that time, the stock has continued meandering in the $3 to $4 range.

We've taken a greater interest in Innodata lately as the company's performance has done well. Q4 2012 results just turned in, point to a 55% growth in FY EPS over 2011, in conjunction with a 17% increase in revenues. The company has a pristine balance sheet with no debt and about $1.15/share in cash.

For those investors who rely on technical analysis and reading charts, looking at Innodata's 10 year chart might generate a bit of interest. Notice how it is quite cyclical in its growth/contraction phases. Looking at where we are today, and the past history of how the shares move, you can draw your own conclusions what likely comes next. Our information shows insider purchasing on the stock price dips in the summers of 2008, 2010, and this past summer of 2012. Each time, following the prior dips/purchases the stock has recovered.

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Our system shows the following insider purchases since May 2012:

Jack Abuhoff is CEO, Haig Bagerdjian is a Director, Ashok Mishra is COO, Stewart Massey is a Director, Andargachew Zelleke is a Director, and Todd Solomon is a Director.

Currently, the company is in the latter phases of a multi-year development effort of IADS - "Innodata Advanced Data Solutions", a new strategic business platform that will lay the foundation for future growth. The company does have prototypes of the platform with a few clients at this time and feedback has been positive. As we listened to management's discussion on the conference call yesterday, we came away thinking that contracts would begin coming sooner rather than later - likely during in 2013.

What the investor needs to realize is that the company has proactively undertaken this project to solidify its future growth. Management had the foresight to understand that they needed to put the time, effort, and investment into developing this strategic platform for change/growth down the road. Think of Innodata like a farmer. Having planted the IADS seeds in 2011, then putting in the investments of time and labor to nurture the crop, we are beginning to see it sprouting out of the soil. A couple years from now, we expect to see Innodata harvesting the flourishing crop as a result.

Considering the general strength of the business and the strength in the balance sheet, we see little downside risk in the shares; and with a little patience, great potential to the upside.

A replay of yesterday's conference call is available, and it would be a very good use of time to listen to it as a precursor to your personal in-depth research.

Innodata has about 25 million shares outstanding with average daily trading volume of only about 50,000 shares. As a result, being somewhat thinly traded, the bid/ask spread can be 5 or 10 cents at times. Anyone who considers purchasing or selling the stock should do themselves a favor, and before trading, review how the stock trades on a day to day basis, always place a limit order, and even go so far as considering buying/selling in small batches and/or utilizing All or None (AON) on your orders.

In general, we believe in never buying your entire position all at one time. Buy a half, a third, or a quarter of what you really ultimately want. If the price goes lower and the investment thesis still holds, then buy more. In most cases, based on what we look at when deciding on an investment, the probability is that we aren't catching the stock at the absolute bottom where it's immediately going to take off after we buy. That being the case, we've learned to never take a full position with the initial purchase. No matter how low the price, it can always go lower. So, instead of possibly being unhappy about a losing position right after purchasing, it becomes an opportunity for continued close monitoring and getting in to your desired position at a lower cost.

Insider-Alerts does not make any buy or sell recommendations with respect to the stock or companies we write about. The reader accepts full liability and responsibility for acting on information we provide and any losses which may result.

Insider-Alerts does not receive any compensation whatsoever for the articles we write and research we publish. We have no relationship of any kind with either the companies we report on, or the forum which we provide our research.

Insider-Alerts may hold positions in the securities of the companies we write about, and if so, that position is disclosed.

Insider-Alerts provides a free daily report of the top insider trades and is available via the Subscribe link on our homepage at insider-alerts.com

Disclosure: I am long INOD.