WBMD, VLNC: Should we Follow the Insiders?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are many ways to screen for the right stock. Many use valuation metrics, while others look at technical analysis among a plethora of other methods and strategies. One of the best indicators I’ve seen is insider buying as it is always nice when people who have arguably the best view of the future of the company put their own money at risk alongside us investors. The following are two stocks I recently found with impressive insider buying.
WebMD (NASDAQ: WBMD) provides various health information services to people nationwide. The stock plunged this past week as management said the company was no longer for sale and the CEO abruptly resigned. As we reported earlier here, major shareholder and billionaire Carl Icahn has accumulated almost another 400,000 shares. He is advocating for management to use the approximately $1B cash hoard that WBMD has to buy back shares after this big drop in price.
This, of course, is a gamble and we have no way of knowing if and when this will come to fruition. As a stock, I don’t see WBMD as a quality holding for the time being, because management already pre-announced lower revenue and earnings this year and trades at a rather lofty 58x forward P/E, 2.2x P/B, 2.6xP/S, and pays no dividend. I definitely wouldn’t be short the stock though either as Icahn definitely has an eye and the means to unlock hidden value the general market isn’t seeing.
Valence Technology (NASDAQOTH: VLNCQ.PK) develops, manufactures, and sells energy systems utilizing its proprietary phosphate-based lithium-ion technology. The company has not been performing well of late, losing over $12M in net income the past 12 months and seeing year over year revenue growth plunge by over 30%. However, major shareholder, board director, and billionaire Carl Berg added just over 2 million shares on Jan. 13. This shows a great deal of confidence as he now holds through his various entities approximately 75 million shares, or approximately 45% of the total company.
But I still don’t see the value with VLNC as it trades at an expensive 33x forward P/E, over 3x P/S and 4x EV/S, negative book value and alarmingly low $5 million cash position and negative $35 million net cash position. This investment is more for the aggressive/venture capitalist investor as it has some proprietary alternative energy technology that can eventually lead to explosive growth. However, I’m more of a value and simple investor, which is why I’d stay away from VLNC personally for now.
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