The last few weeks we struggled to find insider buys with purpose, not so much this week. A highly speculative company might be worth watching for flame money (not afraid for it to go up in smoke). It looks as if International Land Alliance, Inc. (ILAL) is moving into the growers market and could start to sell some pricey real-estate in Baja, Mexico. The Chief Financial Officer (CFO), aka the numbers person, Jason Sustein just bought about a quarter-million of the low-priced security. (1) It’s as high risk as they come but could be appropriate for investors that are willing to lose more than 50% of their investment.
On the more established end of the spectrum, we find The Greenbrier Companies, Inc. (GBX). They design, manufacture, and market railroad freight car equipment in North America, Europe, and South America. Greenbrier operates through three segments: Manufacturing; Wheels, Repair & Parts; and Leasing & Services.
Red (selling) is by far the most prominent color for the insider activity page. In fact, there is only one blue (buy) on the first page. (2) And that belongs to the Chief Executive Officer (CEO) William Furman, who purchased more than $2.1 million of GBX. One click deeper and you’ll see Furman’s favorite GBX color has been red since 2011.
The CEO picked up $1.65 million at $16.52 after the stock collapsed, like everything else, thanks to COVID 19. That was bargain basement buying. Now he’s back even bigger when the railroad company’s shares are banging on its 52-week high of $46.75. Furman added to his GBX pile at $43.57 per share.
Sometimes, it takes a while to learn why insiders bought. Sometimes, it’s right out in the open if you can connect a few dots. Our guess is there aren’t too many dots to connect here. The Biden administration has already shutdown the Keystone XL pipeline and is considering closing others. Guess which industry could benefit if more pipelines get turned off? You got it, railroad.
According to trains.com, “The Biden administration’s efforts to kill key oil pipeline projects may boost crude by rail volumes.” (4) You almost get the sense that somebody knows something, no?
Here what we do know, for sure. Analysts have a consensus earnings per share (EPS) forecast of $2.18 for next year on $2.54 billion in revenue, which is a substantial step up from this year’s expectation of $1.94 billion.
It might take a while, but if GBX were to trade at its average five-year price to earnings (P/E) of 11.05 and/or price to sales (P/S) of 0.46, shares would trade at $24.09 and $35.39, respectively. Both numbers are considerably below Greenbrier’s current price and Furman’s recent purchase price. Investors need to pay up for Greenbrier to offer upside. Using the five-year max P/E of 26.56 puts GBX at $57.90 using the 2022 earnings number. It’s a little better using the half-decade high P/S ratio of 0.79, creating a potential price target of $61.14, again using next year’s sales consensus.
Overall: it’s hard to make a case to follow The Greenbrier Companies’ CEO William Furman. Unless something fundamentally changes, which is possible as we noted, GBX would need to trade at elevated valuations to offer returns that could still underperform the overall market.
1 – https://www.secform4.com/insider-trading/1657214.htm
2 – https://www.secform4.com/insider-trading/923120.htm
3 – https://www.secform4.com/insider-trading/937952.htm
4 – https://trn.trains.com/news/news-wire/2021/02/02-biden-administration-pipeline-restrictions-may-benefit-crude-by-rail