There are thousands of publicly traded companies out there, and they all send out a range of signals that investors must learn to interpret. Parsing these signals is essential for investing success, and having a clear strategy, based on reliable market indicators, often makes the difference between gaining or losing in the market.
One of the clearest signals that retail investors can follow is the buying patterns of corporate insiders. These are the company officers who hold high positions – CEOs, CFOs, COOs, Board members – giving them both access to their companies’ inner workings and responsibility to Boards and shareholders for bringing in profits. The result: insiders don’t buy their own stock lightly, and when they do, investors should take note.
To get our own feel for this strategy, we’ve used the TipRanks Insiders’ Hot Stocks tool to pull up details on two equities whose insiders have been buying recently. There are other positive signifiers to follow; these stocks are rated as Strong Buys by the analyst consensus and are projected to pick up steam in the months ahead. Let’s take a closer look.
Petco Health and Wellness (WOOF)
We’ll start with a look at a company that is both old and new in the public markets. Petco, the well-known pet supply chain and brand, sells everything from pet food and basic care supplies to pet owners’ insurance to grooming, and stores even carry a selection of small live animals. The company went public last January for the third time in its history. Last year’s IPO saw the company put 48 million shares on the market, at $18 each, and raise more than $864 million in gross proceeds.
Petco won’t report its Q4 or full-year 2021 numbers until March, but we can get a feel for the company with a look at the Q3 numbers released in November. The company reported $1.44 billion at the top line, relatively flat sequentially but up 15% year-over-year and nearly 5% above estimates. Net income came in at 20 cents per share, and the company raised its 2021 full year guidance.
Nevertheless, the stock fell sharply after the earnings release due to a significant gross margin shortfall. Specifically, gross margins declined 180 bps year-over-year, falling short of consensus -130 bps estimate. The company attributed the pressure primarily to a higher mix of consumables sales due to comparing against a period last year with an unusually low mix and due to successfully retaining and growing its consumables business.
What it means is, WOOF shares are now priced low, and at least two insiders took note. Michael Nuzzo, who wears multiple hats as EVP, CFO, and COO, spent over $78,000 on 4,340 shares. More importantly, perhaps, company CEO and Chairman Ron Coughlin bought 23,290 shares, putting down over $400,000 for the stock.
On the analyst front, Needham analyst Anna Andreeva sees this stock as undervalued, and priced at an attractive point of entry, with positive long-term outlook.
“[The] stock has pulled back post 3Q21 print and is now trading at 1x EV/Sales on ’22–we think a premium is warranted given less-discretionary nature of the pet category, multiple initiatives to drive organic top line growth ahead of the pet space, and EBITDA expansion (in the past 3 years, EBITDA margins are up only 20-30 bps, on strong top line leverage, with bigger opex control opportunities still ahead),” Andreeva noted.
“With its omni-channel footprint, WOOF should be growing faster than the pet category (projected at HSD through 2025) given early innings of vet hospital expansion (172, opportunity for 900 ), conversion of customers to multi-channel (aided by a unique relationship with DoorDash for same day delivery) and growth of recurring/high-loyalty revenue streams like repeat, BOPUS, Vital Care and PupBox,” the analyst added.
To this end, Andreeva rates WOOF a Buy, and her $30 price target implies a one-year upside of ~56%. (To watch Andreeva’s track record, click here)
Overall, it’s clear that Wall Street agrees with this upbeat take on Petco. The company’s stock has 8 recent reviews, which include 7 to Buy and only 1 to Hold and support the Strong Buy analyst consensus. Shares are trading for $19.27 and their $27.83 average price target indicates room for a 44% upside in the next 12 months. (See WOOF stock forecast on TipRanks)
Adobe, Inc. (ADBE)
From retail pet supplies we’ll move on to the tech industry, where so much of the recent market action has been taking place. Adobe, like Petco, is a well-known name with a solid brand and a strong product line. In addition to creating the PDF in the early 1990s, Adobe is also the purveyor of Photoshop, InDesign, and Illustrator, to name just a few of its host of products. The company has switched its offerings to the SaaS model in recent years, and customers can access the programs on the Adobe Creative Cloud.
This strong tech company has a long history of delivering results, both for customers and investors. But this past December, Adobe’s shares fell sharply, right after the Q4 and full year fiscal 2021 results were released.
The fall in share value came even though the company essentially delivered, once again, on the top and bottom lines. Both revenue and EPS met expectation, coming in at $4.11 billion and $3.20 respectively. Revenue was up 19% year-over-year, and EPS up 13%.
Looking forward, however, Adobe disappointed with its fiscal 2022 guidance. The company expects a top line in the next fiscal year of $17.9 billion, missing the expectation of $18.19 billion. And while management predicts that annualized EPS will grow from $12.48 to $13.70 next year, Wall Street had been hoping to see $14.26.
The drop in share price has not discouraged Laura Desmond, from the company’s Board of Directors, from increasing her holding. Last week, Desmond has purchased over $1 million worth of shares, in two tranches, one of 482 shares and the other of 492.
And she is not the only confident in Adobe’s future. Deutsche Bank analyst Brad Zelnick, who holds a 5-star rating from TipRanks, also believes that Adobe will continue to deliver growth.
“We view Adobe as a leading enabler of digital experiences and see durable growth ahead despite its already-significant market share within its core Creative market… The company’s DX strategy has blossomed since acquiring Omniture in 2009 with the synergies between DM and DX more logical than ever. We are convinced by the enormity of Adobe’s creative TAM (which has been ever-expanding beyond expectations), its many levers for durable growth, as well as the even greater opportunity in Digital Experience,” Zelnick opined.
Zelnick gives ADBE shares a Buy rating, while his $715 price target suggests the stock has an upside of ~35% ahead of it this year. (To watch Zelnick’s track record, click here)
Big-name tech firms tend to get a lot of attention from Wall Street’s stock analysts, and Adobe is no exception. The stock has no fewer than 24 analyst reviews on record, and they break down 18 to 6 (or 3 to 1, if you prefer) in favor of the Buys over Holds, for a Strong Buy analyst consensus view. ADBE is currently priced at $529.89 and its $674.67 average price target indicates room for ~27% share appreciation from that level. (See ADBE stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.