Last week’s insider buying was like Conor McGregor late Saturday night, on its back. Corporate executives closed their bank accounts in the shortened MLK trading week. Meanwhile, insiders are “feverishly” selling stock to start 2021. Bloomberg reports the seller to buyer ratio is the highest since 1988. (1)
For now, we won’t put too much weight into worrying about the disparity of nominal buying versus monstrous selling and what it might mean for the stock market. If history is the guide, it’s probably nothing more than fattening up bank accounts. The S&P 500 rose 12.4% in 1988 and 27.25% in 1989. (2)
Future implications or not, the lack of insider buying activity made for slim pickings once again. This week’s insider buy with purpose was at the very end of the short list.
Zedge, Inc. (ZDGE) Chief Executive Officer (CEO) Jonathan Reich and Director Paul Packer made small but meaningful purchases, in our opinion. The CEO added 1,665 shares at $6.99 to his brokerage account, for a total of $11,652. Packer doled out more cash, spending $82,005 on 11,670 ADGE shares at $7.03. (3)
For at least four-years as the Chief Financial Officer (CFO) and Chief Operating Officer (COO), Reich was either awarded options or sold ZDGE shares. Although he didn’t back up the Brinks’ truck, his $11K purchase is a change in heart. Packer is no stranger to acquiring ZDGE stock. He bought five times prior to last week. The handful of purchases totaled $95,132, all of it while Zedge stock traded for a dollar and change. With the stock trading just a few cents off its all-time high, the Director makes his biggest purchase, nearly equal in amount as his previous five combined.
To the untrained eye, the pair of small insider buys might appear inconsequential. However, the duo combined to meet several insider buying with purpose criteria:
- Change of Heart
- Largest Buy
- History of Profitable Trades
- Multiple Simultaneous Buyers
Zedge may not be well known to investors, the company appears to be well known by smartphone users. The company’s app has been downloaded more than 463 million times, with an active user base of more than 30 million. Zedge users get to download content from popular artists like Nicki Minaj with credits or by watching ads.
Their model is working. In the most recent quarter, Zedge’s recorded 85% revenue growth, with Warren Buffet’s favorite, cash flow from operations jumping 322% to $1.5 million. (4) The lone analyst covering the mobile app company expects sales to hit $12.83 million this year and $16.61 million next year. Earnings expectations for 2021 are $0.13 per share (EPS) and $0.28 for 2022.
Similar companies to Zedge are valued at an average of 17.3 times sales (P/S) and 106 times EPS. If we throw those numbers on ZDGE’s 2022 sales and earnings forecasts, shares could hit $23.95 and $29.68, based on sales and EPS respectively.
Sales and earnings estimates could be volatile with just one analyst. Captain Obviously, with a single analyst on the stock, very few on Wall Street are familiar with ZDGE. That will change, maybe quickly, if the company continues to grow at a high rate. Additional Street coverage would likely be beneficial to shareholders as “Buy” recommendations would attract new investors.
Longer-term, Zedge, Inc. (ZDGE) would offer significant upside if it meets projected revenue and EPS targets and traded at the current industry average P/S or P/E ratios. With insiders buying the stock near all-time highs, they probably see the company at least meeting expectations.
ZDGE is only appropriate for maximum risk investors. Remember, it traded in the $1.50 range as recently as October. A misstep, and the price could easily be cut in half.
1 – https://www.bloomberg.com/news/articles/2021-01-20/companies-are-buying-back-stock-again-their-employees-less-so
2 – https://www.thestreet.com/investing/annual-sp-500-returns-in-history
3 – https://www.secform4.com/insider-trading/1667313.htm
4 – https://investor.zedge.net/prviewer/release_only/id/4562630