We’ve been on the lookout for insiders to start bargain hunting during the current wave of market weakness. More specifically, focusing on companies with insider history dominated by selling. The thesis is executives who’ve used their stock as an ATM might see an opportunity to turn their gold coins into more gold coins, as The Richest Man in Babylon put it to his understudy.
The AZEK Company Inc. (AZEK) has a cool name and fits the profile of what we outlined above. Prior to the past week, insiders did nothing but cash out, sell, sell, and sell some more, except for one director’s buy for $102,500 in August 2021. All out, insiders and major shareholders unloaded more than $2.6 billion, that’s right, billion versus the $100k buy since AZEK’s IPO in June 2020. (1)
So, when four insiders, two Directors, the Chief Legal Officer (CLO) and Chief Financial Officer (CFO), showed up in the buy column, our lookout bell for bargain hunters’ alarm went ding, ding, ding.
Directors Brian Spaly and Vernon Nagel acquired 16,000 and 5,000 shares respectively for nearly $650k. The pair of C-Suite execs, CFO Peter Clifford and CLO Paul Kardish, teamed up to buy 22,100 shares for a little more than $670k. Combined, the quartet spent a little more than $1.3 million.
AZEK claims to be the industry-leading designer and manufacturer of beautiful, low maintenance, and environmentally sustainable outdoor living products, including TimberTech® decking and Versatex® and AZEK Trim®. The company’s portfolios are made from up to 100% recycled material and primarily replace wood on the outside of homes, providing a long-lasting, eco-friendly, and stylish solution to consumers in the Building Products & Equipment industry.
Based on AZEK’s stock chart, the insiders might have bought at a good time. The stock recently created what’s known as a triple bottom in technical analysis jargon. That’s when the price reverses higher at a similar price three times. The AZEK Company’s chart below is a perfect illustration of a triple bottom.
Hitting the same price multiple times and rebounding creates a sort of price barrier that could attract buyers if the stock trades in the neighborhood again, making it difficult for the price to go below the triple bottom. Here is the good news should the AZEK fall below the three-time technical price point, it also serves as the X marks the spot to cut losses. We’d close out our positions if the construction products company closed below $29.
On the upside, Wall Street has a one-year price target of $45.67 on AZEK, roughly 50% higher than where the Chicago-based company trades as of this keystroke, $30.75. (2) The Street believes the company will post a profit of $1.18 per share (EPS) in 2022, up from $0.98 last year. (3)
Right now, the company trades with a price to earnings ratio (P/E) of 46.83 versus the peer group average of 24.31. If AZEK hits analysts’ 2022 EPS projections and maintains its current P/E, then shares would vault to $55.26 per share. On the other hand, should investors value AZEK at the peer group average, then shares would trade for $28.69.
OVERALL: The AZEK Company Inc. (AZEK) appears to have decent reward to risk profile based on its chart, projected earnings per share and potential P/E ratios. The triple-bottom could prove to be the floor that’s difficult to break. If so, investors might consider cutting losses and look to re-enter AZEK at a lower price.
AZEK is only appropriate for investors with an above-average risk tolerance.
1 – https://www.secform4.com/insider-trading/1782754-1.htm
2 – https://finance.yahoo.com/quote/AZEK?p=AZEK
3 – https://finance.yahoo.com/quote/AZEK/analysis?p=AZEK