Stock at 5 Year High, Insiders Selling--Buy or Sell?

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Shareholders of Comcast (NASDAQ: CMCSA) must be very happy with both consistent growing dividends and significant capital appreciation in just one year. Since November 2011, Comcast has advanced from $21 to more than $37 recently, marking a 76% gain. In the last 5 years, it has delivered to its shareholders a total return of 102%, including dividends. If the dividends reinvested are excluded, the return would be 81.5%. In any case, it is much superior than the negative 5.5% return of S&P 500.

<img src="/media/images/user_14219/screen-shot-2012-11-08-at-83806-am_large.png" />

At the current price of $37.43, Comcast has risen to its 5-year high. With a beta of 1.10, Comcast is 10% more volatile than the average stock market. Many people would be excited for a stock, which pays consistent, growing dividends and has enjoyed a nice rise over the years. Should we buy into this stock when it has risen significantly?

Since October, Comcast’s insiders have continued to sell their shares in the market. Notably, Ralph Roberts, the company’s founder and chairman, has exercised his options at $18.08 per share and disposed stocks both in open and non-open market for more than $37 per share, with the total value of nearly $10.2 million. Michael Angelakis, the Vice Chairman and CFO, has sold 134,170 shares for around $37.70 per share, with the total value of more than $5 million. Neil Smit, President and CEO of Comcast Cable and Executive VP of the company, has had an automatic sale of 24,360 shares at $37.79 per share, with the total value of more than $920,500. 

For the third quarter 2012, Comcast experienced a high growth in both top line and bottom line. Its revenue was $16.54 billion, a growth of 15.4% compared to the same period last year. Its operating income posted the same growth to $5 billion. Especially, the EPS for Q3 was $0.78, 136% higher than the EPS in Q3 2011, of $0.33. The largest revenue contribution segment was still Cable Communications, of nearly $10 billion. The second was NBCUniversal , with $6.8 billion, accounting for 41% of the total revenue. The most growing sub-segment of the business was Broadcast Television in NBCUniversal. Its revenue rose nearly 84% from $1.5 billion to nearly $2.8 billion. However, a $1.3 billion increase in Broadcasting Television sub-segment included $1.2 billion from the 2012 Olympic games in London. Excluding the revenue from the event, the segment revenue would be just $1.6 billion, an increase of 6%. As of September 2012, the shareholders’ equity was $49.34 billion; the cash on hand was $8.9 billion. Its goodwill and intangibles were nearly $44.9 billion. On the liability side, its total liability was $113 billion, with $35.8 billion in long-term debt.

Compared to its competitors including DirecTV (NASDAQ: DTV), DISH Network Corporation (NASDAQ: DISH) and Time Warner Cable (NYSE: TWC), Comcast is not the best performing business. It has the highest net margin, but its margin is just a little higher than those of the other three’s. The best one was DirecTV. Although it did not pay any dividends, it had the most outstanding return on capital, of 23% whereas Comcast’s is only 6.8%, DISH’s is only 13.6% and Time Warner’s is only 5.3%. In addition, it does not employ any debt in its operation.

<table> <tbody> <tr> <td> <p><strong> </strong></p> </td> <td> <p><strong>CMCSA</strong></p> </td> <td> <p><strong>DTV</strong></p> </td> <td> <p><strong>DISH</strong></p> </td> <td> <p><strong>TWC</strong></p> </td> </tr> <tr> <td> <p><strong>Net margin (%)</strong></p> </td> <td> <p>9.7</p> </td> <td> <p>9.4</p> </td> <td> <p>8.5</p> </td> <td> <p>8.6</p> </td> </tr> <tr> <td> <p><strong>ROIC (%)</strong></p> </td> <td> <p>6.8</p> </td> <td> <p>23</p> </td> <td> <p>13.6</p> </td> <td> <p>5.3</p> </td> </tr> <tr> <td> <p><strong>D/E</strong></p> </td> <td> <p>0.7</p> </td> <td> <p>0</p> </td> <td> <p>54.7</p> </td> <td> <p>3.4</p> </td> </tr> <tr> <td> <p><strong>P/E</strong></p> </td> <td> <p>17.1</p> </td> <td> <p>13.2</p> </td> <td> <p>12.9</p> </td> <td> <p>16.9</p> </td> </tr> <tr> <td> <p><strong>Dividend yield (%)</strong></p> </td> <td> <p>1.6</p> </td> <td> <p>N/A</p> </td> <td> <p>N/A</p> </td> <td> <p>2.4</p> </td> </tr> </tbody> </table>

My Foolish Take

Among the four, DirecTV seems to be the best pick, with 23% ROIC, no debt, and a 9.4% margin. The business is undervalued at only 13.2x P/E. Comcast has the second lowest margin, of 6.8% and highest P/E valuation, of 17.1x. In addition, its founder, chairman and its CFO have been selling the stocks. Personally, I would not involve in Comcast because of high valuation and the insider sells. I’d rather pick DirecTV to hold it for a long term.


hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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