Insider Weekends: Cluster Purchase By Insiders Of SmileDirectClub

Happy Labor Day weekend from sweltering California. Insider buying increased last week with insiders purchasing $111.24 million of stock compared to $78.79 million in the week prior. Selling decreased with insiders selling $2.46 billion of stock last week compared to $3.07 billion in the week prior.

The huge increase in insider selling in the week prior combined with a decline in insider buying stood out to us and we wrote the following about it last week,

Selling increased significantly with insiders selling $3.07 billion of stock last week compared to $2.09 billion in the week prior. Quite clearly insiders appear to be less enthusiastic about stocks now than they were in mid-March when during a two week period they purchased $1.22 billion worth of stock on the open market. Given the huge rally in the market, it is not surprising to see insiders grow skittish about buying at these levels. I tweeted earlier this week that we are now in “magic money” territory after a big rally in several SaaS stocks and have partially scaled back some positions in the sector including Twilio (TWLO), Zoom (ZM) and Workday (WDAY). With bond yields at historical lows and cash yielding next to nothing, this rally is being driven as much by TINA (There Is No Alternative) as it is by liquidity from the Feb or stimulus programs by various governments.

It turns out that the insiders were prescient in their lack of enthusiasm for stocks, with the S&P 500 index dropping 2.3% last week and the Nasdaq dropping 3.3% after being down as much as 7% at one point. It appears that some of the parabolic moves in certain technology stocks were driven in part by SoftBank (OTCPK:SFTBY) buying both technology stocks and call options on them. Since momentum begets more momentum, the multi-billion dollar purchases by SoftBank were probably the match that kicked off a wildfire in the sector.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week dropped to 22.1. In other words, insiders sold more than 22 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the prior week when the ratio stood at 38.91.

(Source: InsideArbitrage.com database)

Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same-store sales for retailers, funds from operations (FFO) for REITs, and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However, metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys:

1. SmileDirectClub, Inc. (NASDAQ:SDC): $9.575

Shares of this dental aligner company were acquired by 4 insiders:

  • CEO and Chairman David B. Katzman acquired 1,278,130 shares, paying $8.07 per share for a total amount of $10.32 million. These shares were purchased indirectly through a trust.
  • Director Jordan M. Katzman acquired 663,130 shares, paying $8.05 per share for a total amount of $5.34 million. These shares were purchased indirectly by JM Katzman Investments.
  • Chief Financial Officer Kyle Wailes acquired 20,000 shares, paying $7.69 per share for a total amount of $153,800. These shares were purchased indirectly through a trust.
  • Director Richard F. Wallman acquired 15,000 shares, paying $8.51 per share for a total amount of $127,650. Mr. Wallman increased his stake by 12.43% to 135,685 shares with this purchase.

It is fascinating to see how SmileDirectClub decided to start marketing itself as a teledentistry platform company instead of a dental aligner manufacturer. The company’s business model appears to be very simple where it sells dental aligners online, through a network of its own stores, dentist offices and wholesale channels like Walmart (NYSE:WMT) and CVS. At over $1,800 a pop, it is not surprising the company is able to generate 85% gross margins on its aligners. Even before COVID-19 hit, it looks like growth in the U.S. had started to decelerate and the company was looking at international markets to drive further growth.

The company went public at $23 per share in September 2019 raising $1.35 billion in its IPO. The IPO was not received favorably and the stock dropped 27% to close at $16.67 on its first day of trading. Over the next few months the stock continued declining, dropping below $8 by December 2019 before rebounding to over $15 in February 2020. When reporting its Q4 2019 results, the company anticipated 2020 revenue would come in between $1 billion and $1.1 billion. The COVID-19 pandemic hit the company hard in Q2 2020 with revenue declining 45% to $107 million. In light of these challenges, it is not surprising to see the company has a short interest of 36.5%.

The stock jumped nearly 24% following some of these insider purchases and continued to trend higher last week.

P/E: N/A Forward P/E: -47.88 Industry P/E: 59.76
P/S: 5.85 Price/Book: 2.78 EV/EBITDA: -1.77
Market Cap: $3.69B Avg. Daily Volume: 5,515,045 52 Week Range: $3.64 – $21.1

2. Invesco Ltd. (NYSE:IVZ): $11.39

Shares of this asset management company were acquired by 2 insiders:

  • President & CEO Martin L. Flanagan acquired 294,507 shares, paying $10.19 per share for a total amount of $2.99 billion. These shares were purchased indirectly through a trust.
  • Director Sarah Beshar acquired 9,500 shares, paying $10.54 per share for a total amount of $100,117. Ms. Beshar increased her stake by 25.32% to 47,021 shares with this purchase.

P/E: 11.29 Forward P/E: 6.45 Industry P/E: 18.68
P/S: N/A Price/Book: 0.55 EV/EBITDA: 6.81
Market Cap: $5.23B Avg. Daily Volume: 6,478,471 52 Week Range: $6.38 – $19.01

3. Lindblad Expeditions Holdings, Inc. (NASDAQ:LIND): $11.64

Director Thomas S. Smith Jr. acquired 269,790 shares of this expedition cruising and adventure travel company, paying $10.88 per share for a total amount of $2.94 million.

P/E: N/A Forward P/E: -22.38 Industry P/E: 1,089.75
P/S: 2.25 Price/Book: 6.9 EV/EBITDA: 70.27
Market Cap: $580.32M Avg. Daily Volume: 401,906 52 Week Range: $3.01 – $18.46

4. iMedia Brands, Inc. (NASDAQ:IMBI): $6.16

Director Eyal Lalo acquired 256,000 shares of this interactive digital commerce company, paying $6.25 per share for a total amount of $1.6 million. These shares were purchased indirectly by an LLC.

P/E: N/A Forward P/E: -15.02 Industry P/E: 73.4
P/S: 0.18 Price/Book: 3.58 EV/EBITDA: -10.36
Market Cap: $83.66M Avg. Daily Volume: 212,515 52 Week Range: $1.35 – $730

5. Flexsteel Industries, Inc. (NASDAQ:FLXS): $18.13

Shares of this upholstered and wooden furniture company were acquired by 2 insiders:

  • CFO & COO Derek P. Schmidt acquired 59,343 shares, paying $16.63 per share for a total amount of $986,667. Mr. Schmidt increased his stake by 85.42% to 128,818 shares with this purchase.
  • Director Matthew Kaness acquired 5,038 shares, paying $16.70 per share for a total amount of $84,151. Mr. Kaness increased his stake by 39.73% to 17,717 shares with this purchase.

P/E: N/A Forward P/E: 5.53 Industry P/E: 16.62
P/S: 0.38 Price/Book: 0.81 EV/EBITDA: -13.28
Market Cap: $139.48M Avg. Daily Volume: 96,121 52 Week Range: $7.81 – $21.31

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. The Boston Beer Company, Inc. (NYSE:SAM): $810.39

Shares of this beverage company were sold by 2 insiders:

  • Chairman James C. Koch sold 40,000 shares for $863.06, generating $34.52 million from the sale.
  • President and CEO David A. Burwick sold 5,000 shares for $879.55, generating $4.39 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

P/E: 72.7 Forward P/E: 47.42 Industry P/E: 39.21
P/S: 6.77 Price/Book: 11.78 EV/EBITDA: 38.61
Market Cap: $9.89B Avg. Daily Volume: 166,832 52 Week Range: $290.02 – $897.5

2. Microsoft Corporation (NASDAQ:MSFT): $214.25

Shares of Microsoft were sold by 2 insiders:

  • Chief Executive Officer Satya Nadella sold 83,572 shares for $226.14, generating $18.89 million from the sale.
  • EVP, Chief Financial Officer Amy Hood sold 80,000 shares for $218.14, generating $17.45 million from the sale.

P/E: 37.2 Forward P/E: 29.19 Industry P/E: 57.64
P/S: 12.09 Price/Book: 13.71 EV/EBITDA: 24.01
Market Cap: $1.73T Avg. Daily Volume: 34,944,070 52 Week Range: $132.52 – $232.86

3. Interactive Brokers Group, Inc. (NASDAQ:IBKR): $51.89

Vice Chairman Earl H. Nemser sold 545,354 shares of this automated electronic broker for $53.13, generating $28.97 million from the sale. These shares were sold indirectly by EN Holdings LLC.

P/E: 32.25 Forward P/E: 20.27 Industry P/E: 18.68
P/S: 10.27 Price/Book: 3.23 EV/EBITDA: N/A
Market Cap: $21.62B Avg. Daily Volume: 671,042 52 Week Range: $33.7 – $58.5

4. BlackRock, Inc. (NYSE:BLK): $564.63

Director Susan Wagner sold 42,000 shares of this asset management company for $603.48, generating $25.35 million from the sale.

P/E: 19.87 Forward P/E: 17.28 Industry P/E: 18.68
P/S: 6.02 Price/Book: 2.63 EV/EBITDA: 15.49
Market Cap: $90.39B Avg. Daily Volume: 656,060 52 Week Range: $323.98 – $609.69

5. 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS): $0

Shares of this gourmet food and floral gifts provider were sold by 5 insiders:

  • Executive Chairman James F. McCann sold 694,921 shares for $28.65, generating $19.91 million from the sale.
  • President-1-800-Flowers.com Thomas G. Hartnett sold 33,521 shares for $31.21, generating $1.05 million from the sale.
  • Director Larry Zarin sold 18,320 shares for $31.31, generating $573,599 from the sale.
  • President, GFGB Steven A. Lightman sold 10,000 shares for $31.59, generating $315,900 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • Director Leonard J. Elmore sold 3,000 shares for $32.00, generating $96,000 from the sale.

P/E: 29.18 Forward P/E: 18.03 Industry P/E: 73.48
P/S: 1.12 Price/Book: N/A EV/EBITDA: N/A
Market Cap: $1.67B Avg. Daily Volume: 760,735 52 Week Range: $11.15 – $32.78

You can view the full list of sales from this Insider Sales page.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.

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