An Insider With A Nearly Spotless Trading Record

It’s been repeated so many times that it is damn near a jungle, “past performance is no…” You probably filled in the rest long before reading, “guarantee of future success.” We sure hope the Securities and Exchange Commission lawyer who thought it up, thought to copyright it as well.

As far as legalese is concerned, it’s true. Now, for real world applications, would you prefer a heart surgeon with an A+ track record or one with countless malpractice suits? If you had one shot to win a Championship, would you give the ball to Michael Jordan or Scottie Pippen (or Toni Kukoč since that’s in the news of late)? For the record, MJ and Kukoč made their shots.

That’s the buildup and here is the climax, or at least the story we are about to tell of an insider who has almost always been on the right side of the trade going back to 2004.

DXP Enterprises, Inc. (DXPE) Chief Executive Officer (CEO) David Little has been buying and selling his company stock for the last decade and a half. (1) His record is one trade away from being spotless.

Little began buying the industrial equipment manufacturing stock in March 2004 at $4.09. He continued to add stock in two more purchases with his last trade on March 8, 2005, at $5.25. Six-months later, he began selling at $19.05 and continued selling all the way up to $43.34 in April 2007.

The CEO went bullish again in November 2008, buying DXPE at $10.90. Hmm, seems somebody is a fan of the axiom, buy low and sell higher. His November 2008 buy was definitely lower than his April 2010 sell at $21.01.

Little returned to the Market as a buyer in June and August of 2011 to pick up stock at $24.34 and $20.84, respectively. The following April through December 2012, he sold from $39 to as much as $110.23 per share.

Little bought again in December 2015, when he bought at $22.29, only to turn around a sell at $18 three months later. It was his only misfire to date, but not by much. He continued to sell for the next two years from $29.50 to $48.41 in April of 2018.

Now, DXP Enterprises’ CEO is buying again. On June 18, 2021, Little purchased 30,021 shares at $28.67 for a total investment of $860,702. It is his largest purchase to date, by a wide margin. Of course, past performance is no guarantee…

Wall Street sees the Houston, Texas-based distribution company’s shares hitting $40 in the next year. (2) In the past 52 weeks, the price has been as low as $15.42 and maxed out at $35.98. The lone analyst covering the company believes DXP will earn $1.93 per share next year, with sales of $1.24 billion. (3)

In the last half-decade, investors have awarded DXPE an average price-to-earnings (P/E) ratio of 32.34. If the company hits the analyst’s EPS target of $1.93 and traded at its average P/E, then the stock would trade at $62.42. Meanwhile, the peer group is valued at 27.84 times earnings. Using the peer group P/E would put DXP Enterprises at $53.73 sometime in the next 18-24 months.

The picture isn’t as attractive based on DXPE’s price-to-sales average (P/S) of 0.51 for the last five years. Once again, based on 2022 sales expectations and its typical P/S ratio, we generate a target price of $32.92. That’s just about where it trades as we type: $32.52. However, if we use the peer group P/S ratio of 1.85, the outcome looks a whole lot different and attractive, $119.42 per share.

Overall: DXP Enterprises, Inc. (DXPE) appears to offer investors an attractive reward-to-risk profile for the next 18-24 months. On the low end, DXPE’s price won’t change too much from where they are today if they meet next year’s sales target and trade at the company’s five-year average price-to-sales ratio. On the upside, DXPE shares could climb $20, maybe more, if they meet their 2022 earnings target and trade at the peer group P/E, which is lower than DXP Enterprises’ typical price-to-earnings valuation.

When you consider CEO David Little’s successful trading history, it would not be surprising to see DXP Enterprises, Inc. (DXPE) closer to the top of our hypothetical range. Although, past performance…


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