The markets were closed on Friday for Good Friday, and generally we don’t see many (if any) SEC filings as a result. So, when there are filings on a day the market is closed, there are usually just a few, and we see some of the smaller transactions which wouldn’t normally hit our screen. Nonetheless, it makes for interesting analysis.
On Friday, Form 4 filings by Andrew Gordon and David Gordon, President and CEO, and Vice President respectively, showed they sold a combined 600,000 shares for approximately $6 million the prior two days .
There are a couple of items I like to look at when making a decision on the meaning of a particular insider transaction:
- How many shares were bought/sold in relation to the amount owned before the transactions?
- Is the stock price near its recent or long-term high or low?
- What do the fundamentals and earnings picture of the company look like?
- Are there any other items of interest that may raise red or green flags?
1. How many shares were bought or sold in relation to the amount owned before the transactions?
Andrew Gordon sold 290,000 shares from a total 893,000 shares held indirectly. This represented over 30% of the original shares. David Gordon sold 250,000 of 805,000 directly held shares and an additional 60,000 shares of 180,000 shares held indirectly. Again, this was over 30% of the shares held prior to the sales.
2. Is the stock price near its recent or long-term high or low?
With the stock trading around $10/share at the time of the sales, this was a few dollars/share lower than the recent runup over the past several weeks which took the shares from the $7.75/share range up to almost $15/share. Prior to the runup, shares have been meandering between $7 and $9 since mid-November. The jump in the stock a few weeks ago can be attributed to a reasonably good earnings report, and what I’d call a pump/dump article posted on the Seeking Alpha website. With the stock falling back from that unjustified pump, I think that these two insiders were capturing the quick gains they saw over the prior few weeks, thinking the stock is going to fall back to prior trading levels (or lower).
3. What do the fundamentals and earnings picture of the company look like?
Quickly going through the fundamentals/financials things look pretty good on the surface. In that earnings report a few weeks ago, revenues more than doubled over the same quarter in 2011, and earnings per share were up just over 25%. The company carries minimal debt of under $2 million, there’s a bit over $1/share cash, it pays a quarterly 3 cents/share dividend which comes to about 1.2%/year.
I haven’t yet looked at the earnings picture going forward, but assuming the prior quarter numbers were not artificially inflated for some reason (like a one time gain), then even with flat to slightly higher results, things aren’t bad at all.
4. Are there any other items of interest that may raise red or green flags?
a) A key point to note is that there are only 6.3 million shares outstanding. So there’s not a whole lot to go around. This can result in more volatility in the stock price, either up or down.
b) There is currently a large short position of 21% of the float (953k shares). This is a significant number of shares in comparison to the float. I personally don’t believe in short squeezes, however, if you do, then this is definitely something you’d be interested in.
c) The stock trades an average of 700,000 shares a day. This is between 15% and 20% of the float – which is a fairly large amount in my mind, so I believe there is quite a bit of trading taking place rather than longer-term investors buying. I additionally believe, that for the simple fact that this is a coffee company, it gets lumped along with SBUX, GMCR, and PEET, and as a result has a fad component to it.
Overall View: Somewhat Negative
Though I generally have lots of fodder to nail insider sales with, this one isn’t so bad. I believe that the selling here is likely more a result of taking advantage of a short-term anomaly (rise) in the stock, and an admission that the stock will likely fall a bit further.
If anything, this has now become a stock to add to my watch list for potential future purchase. A quick glance at the long-term stock chart indicates this is a $5 stock. I’ll have to go research further, going through the prior year or two SEC filings to gain a better understanding of why the stock shot up over $25/share midyear 2011, and why it has come all the way back down since.
Should the stock trade back into the $7′s, only based on what I know thus far, I would probably consider a small initial investment.
Do you own JVA? Have any thoughts on these insider sales? Other thoughts? Let’s discuss it.
Filed under: Reviews