3 Smid Caps With Insider Buying But….

3 Smid Caps With Insider Buying But….

None of these stocks are recommendations, but they have some interesting characteristics to make it worth watching.

The businesses all show high growth, and with patience, these companies will make good additions to a portfolio.

Clearfield (CLFD)

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Making Fiber Happen

I’ll state the obvious first.

Clearfield is up 300% in 2013.

Smid Caps

Up 312% in 2013

I’m hesitant to buy anything that goes up 300% in such a short period.

Anchoring bias for sure, but with the price appreciating so much, it is definitely easier to get skeptical and much harder to remain objective price wise.

Clearfield, Inc. (NASDAQ:CLFD) sells products for end-to-end fiber optic management and boxes to protect the fiber. They have managed to provide their customers with a way to deliver fiber to areas that were previously not economical or environmentally sound.

With demands for increasing data and speed, the fiber network is growing around the country. By being the value added supplier, Clearfield, Inc. (NASDAQ:CLFD) is on a ride to grow with the big demand it has been facing.

Margins are solid and looks to be a recession proof business.

Smid Caps

Here are some TTM valuation multiples:

  • P/E adjusted for cash is 47
  • EV/EBITDA of 28
  • Price to tangible book value of 6.5
  • P/FCF of 73

For a company priced at such multiples, you would expect the business to have great returns.

However the figures are only average.

  • TTM ROE: 12%
  • TTM CROIC: 14%

Insider ownership is good at 12% but the most impressive is that insiders have been snapping up shares for the past 5 months all the way up to $17.76.

One message here: insiders are extremely confident in the company.

Solarwinds (SWI)

Smid Caps

Monitoring IT Networks

I made the mistake with SolarWinds Inc (NYSE:SWI) thinking that it was a solar energy company.

I couldn’t have been more wrong because Solarwinds is in the business of selling IT management software. Products to monitor IT networks, take logs and monitor server performance.

I wrote about SWI close to one year ago and at the time it was around mid $50?s.

The business is still solid with a clean balance sheet and the growth is still on the high end. It’s just that the market was expecting growth in the 30% range, but it hasn’t been able to produce.

One year ago, various reverse valuation methods showed that the market expectation was 25%. Performing the same reverse valuations, looks like the expected growth rate has fallen to the 10-15% range.

Here is a comparison of last years and this years numbers.

solar winds

SWI Valuation Ratios. Then and Now

It’s fair to say that 2012 was an expensive time to buy. At the moment, it’s treading just above a decent entry level.

And this makes SolarWinds Inc (NYSE:SWI) an interesting stock and one to watch. The fundamentals are there. The growth is still there and the price is nearly there.

Insider activity is a mixed bag because you have a handful of people selling, but at the same time, two insiders have purchased more this year, paying as much as $40 a share.

With SolarWinds Inc (NYSE:SWI) up so much since its IPO 4 years ago, insiders and directors are sitting on a lot of gains, but to see some buying activity this year when it has under-performed the market by so much is a good sign to see.

Portfolio Recovery Associates (PRAA)

Collecting Debt

Portfolio Recovery Associates has been a soldier over the past two years. PRAA is in the business of collecting debt and for that reason, it’s a stock that doesn’t get much coverage.

After all, what’s so glamorous about a company that collects defaulted loans?

Here’s a screenshot from Yahoo finance. The last reported upgrade/downgrade listed is 2010.


PRAA Analyst Coverage

Despite that this is still a $2b company, there is little to no coverage.

Moving on to the business side, Portfolio Recovery has been extremely consistent, so it isn’t out of the question that Portfolio Recovery sells at a premium to its peers.


Dazzling Long Term Consistency and Performance

This type of business performance is something that I want to buy into.

Portfolio Recovery has proven that it is a master of collecting debt so that part isn’t something to worry over.

The main cause for concern is the expense increase as PRAA now have to pay more to purchase the defaulted receivables.

In 2012, PRAA paid 3.7% to face value for all the receivables it purchased.

In the past 9 months ended Sep 2013, PRAA has paid 8%.

If the current economic environment continues to cause debt to rise, margins will start to shrink.

As for insider buying, there has been none. Zero buys in two years. So while the stock is the odd one out, the business and ugliness is something I wanted to share with you.

I’ll be watching all three stocks for sure.



This post was first published at old school value.
You can read the original blog post here 3 Stocks Insiders are Confident About.

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