Slim pickings this week in terms of insider buys with a purpose. Finding a company that meets our standards almost came down to the last shot as time expired. We scoured the roughly 370 insider purchases from last week looking for some with meat on the bone. Usually, we have three to four ideas to choose from before identifying our top choice.
Well, this week was sort of like looking for your keys when you are in a hurry and forgot where you put them. First, you check all the regular places that you normally leave them: kitchen drawers, nope; on the counter, nope; on the fireplace mantle, nope; on the desk, nope; pants/jacket pockets, nope. It’s almost time to throw up the hands and give up, but you look one more time and there they are, on the counter under the mail. After spending 20 minutes looking for the keys, you are late and contemplating just staying home.
That’s sort of how we feel this week.
Only one company managed to garner interest, Barrett Business Services, Inc. (BBSI). However, the staffing and employment services company is thinly traded, averaging just 60,101 shares a day (1). Light volume has its pluses and minuses.
On the plus side, usually very few people are familiar with the company, which can allow you to get in early so to speak. As minuses, stocks with low volume tend to be volatile. A small amount of buying or selling can push the stock dramatically. Keep that in mind if you decide BBSI might be for you.
Chief Executive Officer (CEO) Gary Kramer bought 2,063 shares on September 25th at $48.90 for a total investment of $100,880. Kramer only took open market action once before, selling 486 shares at $88.27 for $42,902 to start 2020. (2)
Despite the small dollar amounts, Kramer’s lone sell suggests he has a good sense of the value of his company’s share price i.e. too high/too low. According to Wall Street’s one-year price target of $77.50, the CEO may indeed be bargain hunting.
Relative to other companies, its sub-sector BBSI appears to offer investors and Kramer some value. Barrett Business Services’ average peer trades at a shade under three times revenue versus 0.41 times sales for BBSI. (3) The employment services company is also discounted on a price-to-earnings (P/E) at 9.5 times earnings verses the sector norm of 22.5.
The consensus earnings estimate for the three analysts covering Barrett is $5.19 per share in 2021. The trio also peg sales to come in at $943.65 million next year. (4) In the last five years, investors paid an average P/E of 15.31 for BBSI shares and a low of 6.49.
If Kramer and the rest of the executive can hit the street’s EPS mark of $5.19 next year, then shares would trade at $79.45 with the five-year average price to sales ratio and at $33.68 with the low watermark since 2015. For the past 60-months, Barrett’s stock price was valued at 52 cents for every dollar in sales. Again. If they can meet Wall Street’s sales expectation in the next 14-months, then the stock would trade at $63.79.
Outlook: Barrett Business Services, Inc. (BBSI) appears to offer investors solid upside based on Wall Street’s view of the staffing company’s projected sales and profits for 2021. The CEO’s limited history of selling before the stock crashed indicates he has a sense of the company’s worth. His recent buy suggests he could see value at BBSI’s current price level.
However, even if Kramer made the correct call, shareholders can expect a bumpy ride with potentially big price swings in a stock that trades just 60,000 shares a day; stay away if you don’t have a stomach for lots of volatility.