RILY - Strong Small-Cap Insider Buys: Q3 2022

Summary

• A thirteen year-long bull market where even laid-back index investors successfully generated average double-digit returns each year is unfortunately behind us.
• As such, extraordinary returns slowly fade and become a distant memory for many, retail investors need to utilize every edge they can find to their advantage.
• Given the difficult situation, insiders willing to deploy their capital towards heavily beaten-down stocks of their own companies should be viewed as more important than ever.
• In today's edition, we bring you the second installment in our recurring series based on companies that enjoyed major corporate insider interests during the third quarter of the year.
• This is our quick list of research-worthy small-cap companies that, in our view, enjoyed a period of unusual and atypical attention from corporate insiders that spiked our interest.

Strong insider buys of Q3

We analyzed thousands of S-4 fillings to find companies that have experienced periods of unusually concentrated purchasing activity by their corporate insiders. We have attempted to place emphasis on companies that enjoyed buying across the board from multiple insiders, in quantities that were not recorded previously, often after a period of selloffs.

In today's edition, we will focus our discussion solely on small-cap stocks, but the series will be followed up with a third installment covering popular large-caps as well. As previously mentioned, we have already published our third quarter edition focusing on mid-caps. For this analysis, we stand behind the definition of small-cap companies as publicly listed companies with a market capitalization less than $2 billion. This discussion will, however, exclude all micro-caps with a market capitalization less than $300 million. Below is our list of research-worthy small-caps that in our view enjoyed a period of unusual and atypical interest from corporate insiders worthy of a further dive:

B. Riley Financial ( RILY )

• Active Corporate Insiders: 3

• YTD Performance: 50.80%

• Total Bought Back: $8,098,135

• Average Price: $49.14

B. Riley Financial provides diversified investment banking and financial services to corporate, institutional, and otherwise high-net-worth clients in the U.S., Europe, and Australian markets. It offers tailored financial solutions through its Capital Markets, Wealth Management, Auction and Liquidation, Financial Consulting, and other operating segments. The difficult financial results led to heavy losses in the markets, with the company's stock down 50.80% year-to-date and 45.14% on a one-year basis. The sentiment surrounding the company degraded to the point that a 17.60% short position was built over the past couple of months. The company does offer a 9.32% dividend yield, but few believe that it won't get cut in the upcoming period. Seeking Alpha Authors are not very much convinced about the future of RILY and have assigned it a "Hold" rating with a score of 3.25/5.00. This has attracted significant interest during the third quarter from corporate insiders including CEO Andrew Moore, Chairman, and Co-CEO Bryant Riley, as well as Director Randall Paulson. They bought back a total of $8.09 million worth of CRK shares at an estimated average price of $49.14. The company currently trades at $43.74 per share.

PROG Holdings ( PRG )

• Active Corporate Insiders: 4

• YTD Performance: -57.20%

• Total Bought Back: $1,317,833

• Average Price: $19.23

PROG Holdings is a financial services holding company out of Salt Lake City that provides lease-purchase solutions to underserved and credit-challenged customers. They effectively pioneered the lease-to-own service in 1999 and are the leading point-of-sale lease-to-own solutions in the country. As they mostly target customers with a lower-end credit rating, the declining economy brought forward risks associated with loan defaults and we have already seen delinquency rates rise significantly over the past couple of months. The stock market was quick to price this in and the company generated a negative year-to-date return of 57.20%, combined with a negative one-year return of 59.08%. After the significant pullback this year, PROG is currently trading at an NTM EV/EBITDA of 5.54x, an NTM P/E of 7.52x, and an NTM MC/FCF of 7.96x. Seeking Alpha Authors are very positive about the general outlook and rate PROG as a "Strong Buy" with an average score of 4.50/5.00. Wall Street Analysts are slightly enthusiastic and have assigned the company a "Buy" rating with an average score of 4.33/5.00. In the third quarter, shares of the Salt Lake City-based company were purchased by President and CEO Steven Michaels, CIO Curtis Doman, CFO Brian Garner, and Secretary Eugene Thomas. Together, they bought back a total of $1.31 million worth of PRG shares at an average estimated price of $19.23. The company is currently selling for $18.64 per share.

Hudson Pacific Properties ( HPP )

• Active Corporate Insiders: 6

• YTD Performance: -57.20%

• Total Bought Back: $609,269

• Average Price: $11.71

Hudson Pacific Properties is the only real estate investment trust that found its way to our third-quarter small-caps list. It represents a REIT that focuses on acquiring, operating, and developing high-end quality office real estate as well as state-of-the-art studio properties on the West Coast. Interestingly enough, it is also known as the largest independent studio and sound stage operator in Los Angeles. Struggling from both short-term pain related to the degrading macroeconomic climate as well as the long-term headwinds associated with the rise of the work-from-home culture, HPP's share price took a beating this year. The REIT has been noticeably underperforming the market, as Hudson Pacific generated a negative year-to-date return of 57.20% and a negative one-year return of 55.59%. Seeking Alpha Authors have been long bullish on the stock, assigning it as a "Buy" with an average score of 4.33/5.00. Wall Street Analysts on the other hand, have been much more cautious, assigning HPP a "Hold" rating with an average score of 2.85/5.00. Still, the pure value proposition seems very convincing as the REIT is currently selling at 5.58x NTM P/FFO and 7.97 NTM P/AFFO while offering a 9.12% dividend yield. In the third quarter, shares of Hudson Pacific were bought by CFO Harout Diramerian, President Mark Lammas, Leasing EVP Arthur Suazo, and Directors Robert Harris, Jonathan Glaser, and Mark Linehan. Altogether, they bought back another $0.60 million during the third quarter at an average estimated price of $11.71. Shares of HPP are currently selling for $10.41 per share.

Ranpak Holdings ( PACK )

• Active Corporate Insiders: 5

• YTD Performance: -86.05%

• Total Bought Back: $2,072,003

• Average Price: $5.16

Ranpak Holdings is an Ohio-based company recognized as the world-leading provider of 100% environmentally friendly paper-based packaging systems. The company has been in the packaging business since 1972 but has recently made a strong pivot to sustainability. It operates brands such as FillPak, PadPak, WrapPak, Geami, and ReadyRoll. PACK has had a terrible year in the markets as it generated a negative year-to-date return of 86.05% and a negative one-year return of 86.73%. In late 2021, the company sold for as high as $42.1 per share. PACK is currently trading at an NTM EV/EBITDA of 9.83x and an NTM MC/FCF of 29.32x. Both Seeking Alpha Authors as well as Wall Street Analysts are still bullish on the company and have assigned Ranpak a "Buy" rating with an average score of 4.00/5.00, as well as a "Buy" rating with an average score of 4.33/5.00, respectively. Active corporate insiders in the third quarter were Chairman and CEO Omar Asali, and CFO William Drew, alongside directors Alicia Tranen and Antonio Grassotti. Insiders bought back a total of $2.07 million worth of PACK shares for an average estimated price of $5.16. The company is currently selling at $5.43 per share.

JELD-WEN Holding ( JELD )

• Active Corporate Insiders: 3

• YTD Performance: -62.65%

• Total Bought Back: $2,479,339

• Average Price: $12.02

JELD-WEN Holding is a Charlotte-based company that is in the business of designing, producing, and distributing interior and exterior doors, wood, vinyl, and aluminum windows, wall systems, shower enclosures, closet systems, and other components used in new construction, as well as repair and remodel of residential homes and non-residential buildings. It owns brands such as JELD-WEN, AuraLast, MiraTEC, Extira, ImpactGuard, Stegbar, Regency, Corinthian, and Swedoor, among others. Cost inflation slowly creeping in alongside a weakening underlying demand led to the company underperforming in the market, as it managed to generate a negative year-to-date return of -62.65% and a negative one-year return of 47.13%. After getting hammered in the markets, JELD is currently trading at an NTM EV/EBITDA of 7.32x, an NTM P/E of 7.83x, and an NTM MC/FCF of 4.90x. Seeking Alpha Authors remain positive on JELD and have rated it a "Buy" with an average score of 3.66/5.00. Wall Street Analysts do not necessarily share this opinion, assigning JELD-WEN Holding a "Hold" rating with an average score of 2.84/5.00. In the last quarter, shares of JELD were purchased by Turtle Creek Asset Management which already owns more than 10% of the company, as well as Directors David Nord and Steven Wynne. They bought back $2.47 million worth of the company during the third quarter at an average estimated price of $12.02. JELD is currently trading at $10.65 per share.

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