Profitable Companies With High Insider Ownership (Part I)
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If managers own significant stakes in the companies, they will act in the best interests of the shareholders. That is why I always like companies with a high amount of insider ownership. In order to find high quality companies with high insider ownership, I ran a screen with four main criteria: (1) market capitalization greater than $1 billion, (2) insider ownership higher than 20%, (3) the return on invested capital is more than 15%, and (4) the EV/EBITDA is maximum 10x.
A Global Leader in Hardware and Software Enterprise Solutions
Oracle (NYSE: ORCL) is the global leader in the enterprise software and the computer hardware industry. Around 70% of the total revenue was generated from software business in 2012. The hardware system was the second biggest revenue sources, which accounted for around 17% of the total revenue. To expand the business into the hardware market, Oracle acquired its major competitor, Sun Microsystem, for $7.4 billion in the beginning of 2010. With tje Sun acquisition, Oracle has become the leader in the engineering system segment of the hardware business, which was highly profitable.
On the other hand, Oracle has also expanded aggressively into cloud computing business. Recently, it bought Eloqua (NASDAQ: ELOQ) for around $810 million at a valuation of 9x P/S. Eloqua was the provider of the web-based on-demand revenue performance management, which could be used to manage marketing and sales initiatives for businesses to better predict their revenues. With this deal, Oracle could take advantage of Eloqua’s 1,200 customers from the cloud-based marketing software service.
In terms of insider ownership, Larry Ellison, the founder and the CEO of Oracle, owns more than 1.1 billion shares, accounting for 23.35% of the total shares outstanding. Trailing twelve months, the return on invested capital was nearly 17.7%. With the current market cap of $164 billion, the enterprise value is $152.24 billion. The market is valuing Oracle at 8.8x EV/EBITDA.
And a Profitable Pizza Chain
The second screen result is the franchise operator of pizza restaurants, Papa John’s (NASDAQ: PZZA). The company is operating around 4,029 restaurants globally. In the past three years, Papa John’s has enjoyed consistent comparable sales growth of 2.6% in 2010, 5.1% in 2011, and 7.1% in 2012. In the recent third quarter results, Papa John’s had around 56 global net restaurants opened, with the comp sales growth of 2.5% in North America and 6.9% in the international market. Trailing twelve months, it generated a high return on invested capital at around 23.66%, with a net margin of 4.73%.
The company’s founder, John Schnatter, is also the chairman and the CEO. Mr. Schnatter owns more than 6 million shares, accounting for 24.7% of the total shares outstanding. Papa John’s is trading at $55.60 per share, with a total market capitalization of $1.29 billion. It is valued at roughly 10.3x EV/EBITDA.
Foolish Bottom Line
Both Chairman and CEO's of Oracle and Papa John's are running the companies they have founded. In addition, those two companies are generating decent returns and are cheaply valued in the stock market. Personally, I think these two stocks are the right choice for investors in the long run.
hoangquocanh has no position in any stocks mentioned. The Motley Fool owns shares of Oracle. and Papa John's International. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!