A Blockchain Habitual Insider Buy

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Wow! That was our first thought when we saw last week’s roster of insider buys. It was so slow, if not the slowest week that we can remember. Hopefully, the lack of activity is not an indication that corporate insiders see market storm clouds on the horizon. Last year was tough on investors, maybe insiders are just being patient to see how things develop.

Because the list of buys was so short, there was only one transaction to consider. Applied Digital Corporation’s (APLD) Chief Executive Officer (CEO) Wesley Cummins purchased 175,000 shares for an investment of $392,750. (1)

Cummings is what we call a habitual buyer, somebody who buys all the time. Normally, we don’t highlight habitual buyers. However, APLD appealed to us on two levels.

  1. Its Industry
  2. Its Current Price relative to the consensus price target

Applied Digital designs, develops and operates next-generation datacenters across North America to provide digital infrastructure solutions to the rapidly growing high performance computing (HPC) industry; more plainly, blockchain.

APLD currently trades at $2.40, and Wall Street believes it could more than double with a one-year price target of $5.89. (2)

According to Markets and Markets, “The global Blockchain Market size was estimated at USD 4.9 billion in 2021 and is projected to expand USD 67.4 billion, growing at CAGR (compound annual growth rate) of 68.4% during the forecast period.” (3) Applied Digital is a low-priced stock in a high growth market.

We treat stocks under $3 as options that don’t expire and that’s our strategy here; a longer-term, risky holding with the potential for major upside if things break the right way. Analysts expect things to go APLD’s way right away.

Wall Street sees the capital markets company earning a profit of $0.31 per share (EPS) next year with sales growing aggressively this year and next. CEO Cummins’ company’s topline is forecast to expand by more than 800 percent this year, to $78.46 million from $8.55 million. In 2024, revenue is projected to balloon to $307 million.

The average company in the same industry as Applied is currently priced at 25.2 times earnings (P/E) and at 7.2 times sales (P/S). If management can meet Wall Street’s expectations for 2024 and trades at the industry average valuations, then APLD could reach $7.81 or $23.40, based on P/E and P/S respectively.

Overall: Despite it being a soft week for insider buying, Applied Digital Corporation’s (APLD) could prove to be a worthy long-term holding for aggressive investors. CEO Cummings’ habitual buying habits hint at his belief in the blockchain company’s prospects. Wall Street expects the company to turn a profit in 2024 with sales advancing rapidly.

It’s been our experience that owing companies as they turn profitable can be a good time to be a shareholder.  That being said, APLD is only appropriate for the most aggressive investors with a time horizon of at least two years.

 

1 – https://www.secform4.com/insider-trading/1391935.htm

2 – https://finance.yahoo.com/quote/APLD?p=APLD

3 – https://www.marketsandmarkets.com/Market-Reports/blockchain-technology-market-90100890.html#:~:text=Blockchain%20Market%20Forecast%20Analysis,68.4%25%20during%20the%20forecast%20period.