4/12/12 Focus Stock – AngioDynamics Inc. (ANGO)

My focus stock this week is a small medical device maker, AngioDynamics (ANGO).

Through the week, five Form 4 filings were made by four insiders purchasing a total of just under 15,000 shares. Similar to JVA last week, generally we do not see small purchases like this hit our screens unless there are few filings on a particular day.

The filings showed up in our alerts for filings made on Tuesday and Thursday which totalled about $94,000 and $31,000 respectively. Another smaller filing was made on Wednesday as well. The purchases made on Monday included 5,000 shares by the CEO, Joseph Devivo.

Though the purchases were relatively small in size and dollar amount, when viewed in a larger context, a nice picture develops.

Let’s have a review of AngioDynamics using my research points.

1. How many shares were bought or sold in relation to the amount owned before the transaction(s)?

The four insiders who purchased shares during the week along with the amounts are shown below:

Who Date Shares Price Shares After Purchase
BUCCI VINCENT 4/9/2012 2000   11.80 31,846 (D)
DEVIVO JOSEPH 4/9/2012 5000 11.82 36,000
KAPUSTA MATTHEW C   4/10/2012 1000 11.40 16,000
GOULD KEVIN J 4/11/2012 2700 11.72 2,700
BUCCI VINCENT 4/12/2012 4000 11.82 4,000 (I)

View: Positive

2. Is the stock price near its recent or long-term high or low?

The stock hit a new 52-week low at $11.35 during the week as the insiders were purchasing. The stock has not traded below $12 since mid 2009. Looking at the 5-year chart, it is clear that $10 is hard resistance.

View: Positive

3. What do the fundamentals and earnings picture of the company look like?

The fundamentals are good for the most part. Of particular note is a cash hoard amounting to over $5.50/share. Book value is over $16/share, and there is minimal long-term debt.

The recent earnings report showed quarterly sales down 2% from prior year, gross margins down 1%, and for the quarter a loss of 7 cents/share attributed to one-time costs largely for restructuring. Removing the one time costs gave a profit of 9 cents/share compared to 15 cents/share a year ago.

I don’t like one-time costs and companies that brush them off and claim what their profit would have been without them. Too often, we see companies taking these one-time costs year in and year out, and then they’re no longer one-time costs, but the norm of how business is conducted. There’s a reason why it’s called “non-GAAP”, because it is not part of accounting standards. So, in our book, ANGO posted a loss of 7 cents/share for the quarter and that’s the end of the story.

View: Neutral

4. Are there any other items of interest that may raise red or green flags? 

a) Insiders routinely buy shares. Going through the history, purchasing shares is the norm, they don’t sell. This is very positive. It shows management has skin in the game, and are willing to invest more should they believe shares are undervalued.

b) The company is in the process of completing an acquisition that will solidify it’s position as number one or two in each of its key markets. More information can be found in the prior link to the earnings report press release. This is a link to the full 10-Q.

View: Neutral

Overall View: Somewhat Positive

The company has been clear with its 2012 earnings guidance that this will be a year for rebuilding. With the acquisition of Navlyst Medical, some restructuring, and investment in quality control, profit will be held back as a result. However, the investments being made now, should translate into sales and profit growth going forward. With reduced earnings through the remainder of 2012, I believe it will make 2013 very good as comparables for 2012 should be easy to beat showing excellent growth.

Aside from the short-term restructuring issue, the balance sheet is very strong with $5.68/share in cash, and a miniscule $7 million in long-term debt. Book value checks in at $16.33/share.

This is a company I personally like and would consider purchasing the stock. The simple reason is that the company manufactures/sells tangible products, it is profitable, it has an excellent cash cushion, and negligible debt. I like companies with strong balance sheets because it gives them flexibility to ride out storms, make prudent acquisitions, and shareholders have tangible value (can’t get any more tangible than hard cash).

Do you own ANGO? Have any thoughts on these insider purchases? Other thoughts? Let’s discuss it.


4/6/12 Focus Stock – Coffee Holdings Inc. (JVA)

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:

  1. How many shares were bought/sold in relation to the amount owned before the transactions?
  2. Is the stock price near its recent or long-term high or low?
  3. What do the fundamentals and earnings picture of the company look like?
  4. 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.

View: Negative

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).

View: Negative

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.

View: Positive

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.

View: Neutral

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.