AVD - Strong Small-Cap Insider Buys: Q2 2023

2023-08-01 01:59:28 ET

Summary

• After covering second-quarter corporate insider activity among mid-cap and large-caps, today's article will cover on the most interesting insider purchases for small-cap companies.
• Corporate insiders at American Assets Trust, National Vision, Skillz, Enviva, Heartland Express, and Zumiez have been buying significant amounts of shares, signaling confidence in their respective companies.
• Other notable insider activity among small-cap stocks includes B. Riley Financial, Cannae Holdings, i3 Verticals, whose CEOs have bought million worth of stock in the second quarter.
• Below you will find a group of interesting small-cap stocks that we consider research-worthy and could likely be positioned to outperform if the market recovery continues.

Big small cap buys in Q2?

We analyzed thousands of S-4 filings in the second quarter in an attempt to identify firms whose corporate insiders indulged in unusually concentrated buying activity. Our dive into research-worthy stocks that have enjoyed special attention from their corporate insiders resumes with small-caps. We already published articles covering second-quarter activity for large-caps and mid-caps . For this piece, we have defined small-cap companies as publicly listed firms with a market cap of less than $2 billion. We have also purposely stayed away from any micro-caps. Our original article with the main thesis can be read here , while the last quarter's article covering mid-cap companies can be accessed with this link .

Below is our list of research-worthy mid-caps that, in our view, enjoyed a period of unusual and atypical interest from corporate insiders during the first quarter of the year and are worthy of a further dive:

American Assets Trust ( AAT )

• Active Corporate Insiders: 1

• Year-To-Date Performance: -15%

• Total Bought Back: $16,412,372

• Average Price: $18.50

AAT represents a vertically integrated and self-administered real estate investment trust that operates office, retail, and residential properties in some of the most sought-after markets like California, Texas, Oregon, Washington, and Hawaii. Analyst estimates have the small-size REIT trading at an NTM P/FFO of 10.03x and a P/AFFO of 14.65x while offering a well-covered dividend yield of 3.00%, tying up only 29% of its FFO. However, with a majority of its properties and ABR originating from its office side of the portfolio, the market has been rather unkind, crushing the stock for the better part of the last year. AAT has generated a negative 15% year-to-date return and is still struggling to bounce back to its pre-2020 prices. SA Analysts are quite bullish on the stock, assigning it a "Buy" rating with an average score of 4.00/5.00. This slightly contradicts the Street Analysts, who remain neutral, assigning it a "Hold" rating with an average score of 2.75/5.00. The REIT has a truly long and impressive history of insiders signaling confidence in the business and buying significant amounts of ATT shares in the open market, however, the largest purchase of them all came in the second quarter. Unfortunately, it has not proved very lucrative for investors to go along with management in this endeavor, at least not up until this point. CEO Ernest Rady executed the largest insider purchase so far, opting to buy $16.41 million worth of AAT shares between the 1st and 11th of May, paying on average $18.50 per share. Shares of the REIT can be purchased for $22.00 currently.

National Vision Holdings ( EYE )

• Active Corporate Insiders: 2

• Year-To-Date Performance: -45%

• Total Bought Back: $1,388,673

• Average Price: $24.79

National Vision Holdings is a Georgia-based company that represents the second-largest and one of the fastest-growing optical retailers, with over 1,300 stores and an active presence in 44 U.S. states and Puerto Rico. It is in the business of offering eyeglasses, contact lenses, and optical accessory products and provides eye exams through brands like America's Best, Vista Optical, Eyeglass World, Vista Optical, Fred Meyer, and others. EYE has had a pretty difficult year in the markets behind itself, having generated a negative one-year return of 27% and a negative year-to-date return of 45%. A group of insiders executed a coordinated buyback effort including CEO Reade Fahs and directors Randolph Peeler and Thomas Taylor, who bought back roughly $1.38 million worth of EYE shares during the second quarter in the May 17th–24th period. Despite the selling pressure as of late, the optical retailer still trades at a rather steep valuation, with the market assigning it an NTM EV/EBITDA of 16.26x, a P/E of 40.04x, and a P/FCF of 47.48x. The company is held in fairly high regard by Wall Street Analysts, who have assigned it a "Buy" rating with an average score of 4.16/5.00. SA Analysts, on the other hand, are quite more negative, with a "Hold" rating and an average score of 2.66/5.00. EYE shares can currently be bought for $21.

Enviva ( EVA )

• Active Corporate Insiders: 5

• Year-To-Date Performance: -74%

• Total Bought Back: $3,359,774

• Average Price: $8.87

Major troubles for the industrial wood pellet giant began when Blue Orca released a damning short report highlighting several structural issues with the company that immediately pulled the stock down roughly 20%. They described EVA as a product of deranged European climate subsidies, overstating its cash flows and EBITDA, and likely to have its dividend cut. As a result, Enviva has generated a negative year-to-date return of 74% and a one-year negative return of 80%. This prompted a strong response from the firm, claiming it acknowledges the role of short-selling in public markets, but overall dismisses it as containing "numerous errors, repeating previous unsupported speculation, and gross mischaracterizations". Both Street and Seeking Alpha analysts remain quite anxious about the company's future, with both groups assigning it a "Hold" rating on average, as shorts still haunt the stock, with roughly 20% of the float being shorted at the time of writing this article. This is when the second coordinated purchase effort was executed by the EVA insiders, with the first one being late last year. Mark Coscio, John Bumgarner, Ralph Alexander, and a couple of other directors have bought back roughly $3.35 million worth of EVA shares at an average estimated paid price of $8.80 per share. Since then, the share price has recovered slightly. Enviva shares can currently be bought for $13.44.

Heartland Express ( HTLD )

• Active Corporate Insiders: 3

• Year-To-Date Performance: 5%

• Total Bought Back: $3,365,814

• Average Price: $14.96

Heartland Express is essentially a family-owned and operated transport and logistics company. It offers short-to-medium-haul and long-haul truckload carrier services in the United States and Canada. The stock has not moved much over the course of the decade, usually finding itself trading between $15 and $20 per share. Heartland also traded roughly in line for the better part of the year, having generated a year-to-date return of around 5%. With today's prices in mind, the market values HTLD at a rather premium NTM EV/EBITDA of 5.68x, a P/E of 21.48x, and a P/FCF of 12.12x. This hasn't stopped family insiders from executing a significant purchase spree. Insiders, including CEO and COB Michael Gerdin, bought together approximately $3.3 million worth of Heartland Express shares for an estimated paid price of $14.96. Seeking Alpha Analysts have recently turned slightly bullish on the stock, rating it a "Buy" with an average score of 4.00/5.00. However, Wall Street Analysts still remain unconvinced and rate HTLD as a "Hold," with an average score of 3.14/5.00. HTLD shares currently trade at around $16.20 per share.

Skillz ( SKLZ )

• Active Corporate Insiders: 2

• Year-To-Date Performance: 22%

• Total Bought Back: $1,645,870

• Average Price: $0.52 ($10.40 post-reverse split)

This is yet another example of a CEO signaling a huge vote of confidence in his stock. Andrew Paradise is a very vocal and outgoing founder and CEO of the mobile games platform that has gone through quite a rough patch in the past couple of years. He bought some $1.5 million worth of shares between the 14th of April and the 12th of May, now owning 10.5 million shares of SKLZ in total. Together, the insiders spent approximately $1.64 million buying shares at an average price of $0.52 per share. It trades at only a fraction of its former market cap and was forced to undergo a 20-1 reverse stock split in order to bring itself back under listing regulation. The move served as a tailwind for the stock and pushed it up slightly, having generated a 22% year-to-date return. The insider buying spree occurred only months before the split. The firm still actively burns through cash as year-over-year top-line growth has been cut in half. Shorts still smell blood in the water and have 10% short float built on top of Skillz. Both SA and Wall Street Analysts don't see a clear road ahead for the young tech company and rate Skillz as a "Hold". After the reverse split, SKLZ shares can currently be bought for $12.40.

Zumiez ( ZUMZ )

• Active Corporate Insiders: 3

• Year-To-Date Performance: -13%

• Total Bought Back: $1,237,850

• Average Price: $14.37

ZUMZ represents a Washington-based specialty clothing company that is in the business of selling stylized clothing ranging from footwear, apparel, and accessories all the way to hard goods such as skateboards and snowboards. The company owns and operates brands including Zumiez, Blue Tomato, and Fast Times and heavily focuses on young adults as a target group for its products. During the last bull market and its all-time high, ZUMZ traded for a while above the $50 per share level, but the stock price has been crushed since then, and it has all been a downside for shareholders from that point on. The last year has not been much different, with Zumiez generating a negative one-year return of 27% and a negative year-to-date return of around 13%. The firm trades at an EV/EBITDA of 19.30x, a P/E of 50.70x, and a P/FCF of 7.72x, which is far from a necessarily cheap valuation. The group of insiders that executed a coordinated buyback included CEO Richard Brooks and two company directors, who bought roughly $1.23 million worth of Zumiez during the second quarter. On average, they are estimated to have paid $14.37 per share. It would be worth pointing out that the concentrated buying effort by the corporate insiders is the first positive indication in years of the same insiders just selling the stock. Wall Street analysts remain unconvinced of its prospects, rating it a "Hold". Seeking Alpha Analysts are slightly more enthusiastic on the other end, rating the company as a "Buy" with an average score of 3.66/5.00. Zumiez is currently being sold for $18.82 per share.

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