Retailer Alert: Are These Stocks Worth Buying?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Insider buying has always been seen as a strong bullish signal, since these are the people with the best view of the company. If they are putting their money into buying more shares, chances are good the stock is poised to move higher. Of course, if it were that simple then every “fool” would blindly follow each insider's every move. Let's take a look at a few stocks with notable insider buying to see if retail investors should follow suit.
Nationwide closeout and discount retailer Tuesday Morning (NASDAQ: TUES) has over 850 stores in 43 states. The company has done well the past 52 weeks, but has recently back-tracked approximately 20% from its $6.86 52-week high. Board director Steven Becker seems to see this as a buying opportunity, buying collectively from Nov. 1-5 456,735 shares at an average price of $5.92, equating to just over $2.7 million worth of stock.
While this is encouraging, the fundamentals don’t seem strong, as the company has missed consensus estimates the past two quarters and does not pay a dividend. Moreover, the company is still exhibiting weak margins and returns on equity, making it hard for me to get behind at this time.
If looking at a high quality discount retailer, Target (NYSE: TGT) is worth a look. The company is far more established, with over $70 billion in revenue and the benefits of economies of scale that come with it. The company has superior margins and returns on equity, along with a consistently growing 2.3% dividend yield.
Sporting goods store Cabela’s (NYSE: CAB) operates 40 stores throughout the United States and Canada, and generated approximately $3 billion in revenue and $175 million in net income these past twelve months. The stock has been fantastic the past 52 weeks, soaring over 100%; but it recently cratered 20% on a disappointing earnings reports, creating a possible buy opportunity. Board director Mark Reuben seems to think so, buying collectively from Nov. 1-5 30,000 shares at an average price of $44.54, equating to over $1.3 million worth of stock.
This is a nice vote of confidence and has me digging deeper into the company. Besides the most recent earnings miss, the company exceeded consensus estimates the previous three quarters and continues to sport healthy margins. Moreover, the company has now come down to a reasonable 1x price-to-expected growth rate and 1x price-to-sales and 15x price-to-earnings. The company doesn’t pay a dividend though, which is discouraging; however, this can make for a nice speculative rebound opportunity, as it seems the earnings miss was a one-time aberration.
However, if looking for a more stable and less speculative company, why not look at the world’s largest in Wal-Mart (NYSE: WMT)? The company’s revenue base exceeds $460 billion, while earning over $16 billion in net income. The company also trades at a discount to sales, and perhaps most importantly, pays a healthy 2.2% dividend that has been consistently growing.
I’d like to also say I appreciate you reading my thoughts and reiterate that these are just the views of the blogger and should not serve as a substitute for any professional financial advice or counsel in general. Respectful comments and questions are always welcome below on the comment board.
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