When multiple directors buy shares in a company, I tend to take note.
Sometimes, we see directors buying shares in a high quality growth story that has had a temporary set back. Other times, as with the example below, we see directors buying shares after an underperforming company submits improved results.
Both Infomedia and 3P Learning have really disappointed the market with falling profitability over the last few years. However, in February 2023, both reported improved half year results. And as you will see below, both companies have seen multiple directors buying shares, at around current prices.
Infomedia (ASX: IFM)
Infomedia provides parts, catalogs and servicing software for the automotive industry, enabling data-driven management of the vehicle and customer lifecycle for automotive companies, sales organisations and dealerships worldwide.
In February, Infomedia reported a strong 39% improvement in profit based on more modest revenue growth of 7%, implying it is making progress with its turnaround strategy. The company is forecasting a stronger second half, in terms of revenue at least, and modest growth in annualised recurring revenue to at least $129m by the end of FY 2023. This would put it on about 4.3 times ARR, given the current market capitalisation is about $560m at the current price of $1.495
In this context, it is worth noting that Director Edwina Gilbert bought about $8.8k worth of shares at about $1.46, Director Lisa Harker bought about $37k at about $1.48, and late last year Director Jim Hassel bought about $31k worth of shares at around $1.20.
Also late last year, Director Bar Vogel paid about $1.20 for around $60k worth of shares, and CEO Jens Monsees bought around $150k at $1.22.
There were some non-binding offers to takeover Infomedia at around $1.70 in 2022, but these did not come to fruition. Analyst estimates have Infomedia steadily growing profit from here, but the company has a long history of underperformance and disappointment. Therefore, while I do think the director buying indicates bullish sentiment among the board, if I were to trade this stock, I would not be too greedy.
Like 3P Learning below, Infomedia is more of a turnaround story than a high quality growth story.
3P Learning (ASX: 3PL)
3P Learning is a $345m company specializing in educational software for schools and families. It is most famous for its Mathletics and Reading Eggs brands. Over the years it has been mismanaged poorly, with high expenses and low profits, seeing the share price dropping from over $2.40 to $1.25 today.
In February, 3P Learning reported a return to profit (albeit just $350k). Importantly, however, the company generates higher free cash flow and profit, in line with the start of the Australian school year. Could this be the start of a turnaround?
In this context, I note that at the end of February 3P Learning Director Allan Brackin bought $128,961.50 at just under $1.29 per share. Then 3P Learning founder Matthew Sandblom bought $37,000 shares at between $1.20 and $1.25. Finally, Viburnum funds (represented by Director Craig Coleman) also increased its holding. Viburnum owns almost 51.2 million shares, just under 19% of the company.
These purchases could be a sign that directors are confident of a strong second half result. However, 3P Learning is quite illiquid and has a poor track record since listing. Therefore, I would approach any trade with caution.
Overall, while I do like to buy shares in companies around the time insiders are also buying shares, I much prefer to buy shares in companies that have a long term history of success.
Therefore, while I think Infomedia and 3P Learning are interesting trade ideas, I am much more tempted by these 2 high quality stocks with much higher insider ownership, and insider buying at around current prices!
Disclosure: the author of this article does not own shares in IFM or 3PL, and will not trade shares in DTL for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).The information contained in this report is not intended as and shall not be understood or construed as personal financial product advice. Nothing in this report should be understood as a solicitation or recommendation to buy or sell any financial products. Equity Story Pty Ltd and BlueTree Equity Pty Ltd t/a A Rich Life do not warrant or represent that the information, opinions or conclusions contained in this report are accurate, reliable, complete or current. Future results may materially vary from such opinions, forecasts, projections or forward looking statements. You should be aware that any references to past performance does not indicate or guarantee future performance.
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