Despite a decent amount of insider activity last week, there weren’t many transactions that we’d define as buying with a purpose. Some insiders clearly bought shares of their companies for gifts. For example, NVIDIA Corporation (NVDA) Chief Financial Officer Colette Kress bought 100 shares each for “Son 1” and “Son 2”. She must have read Dr. Suess’ The Cat in the Hat right before they were born.
Most other activity fell into small buys, habitual buys, institutions adding to their positions, or purchasing shares via an offering, none of which meet our criteria; although, some studies have shown that insider purchases for family members generate the top returns.
A cluster of insiders buying Boxlight Corporation (BOXL) caught our attention for two reasons:
1 – Three top of the food chain execs bought at the roughly the same time
2 – The CEO invested a large sum relative to his base pay
Chief Executive Officer (CEO) and Chairman, Michael Ross Pope, President Mark Starkey and Chief Operating Officer (COO) Henry F. Nance bought a combined 145,569 shares for a total investment of $232,730. (1) Admittedly, that’s not a lot of money. However, Pope purchased $104,380 worth, which is a little more than a third of his annual pay. (2)
It’s been our experience that insiders with relatively small compensations packages, compared to most other publicly traded companies, tend to do well when their investment is a large chunk of their income. It’s also interesting to note that the trio of insiders have only previously exercised options, which makes open market buys standout.
Boxlight develops, sells, and services interactive classroom solutions for the education market worldwide. The company provides a range of interactive classroom technology products primarily targeted at the K-12 education market. It seems like a timely business considering the CDC says, “Nearly 93% of people in households with school-age children reported their children engaged in some form of “distance learning” from home.”
Wall Street clearly sees the company benefiting from remote learning as schools shut their doors thanks to COVID 19. Analysts forecast the small, education-tech company’s revenue to explode next year. Sales are forecasted to be $133.15 million in 2021 compared to this year’s consensus of $50.01 million. (4) That 166% topline growth. Those sorts of numbers usually attract investor’s attention.
Boxlight is expected to lose money this year but the street predicts earnings per share of $0.04 for next year. With sales forecasted to grow at 166%, a price to earnings ratio (P/E) of half the growth rate (83%) is not out of the question. In fact, most companies trade at a premium to their growth rate. A P/E of 83 times four cents would put BOXL at $3.32 in the next 12-18 months.
Meanwhile, the average in the education company’s industry is valued at 4.3 times revenue. If management delivers on Wall Street’s expectations of $133.15 and trades at the industry average price to sales (P/S) ratio, BOXL would price out at $11.19. As we type, investors have awarded the company a P/S ratio of 1.26, which is low in our opinion based on their projected numbers. At the current valuation, shares would hit $3.28 based on revenue of $133.15 million.
While compared to BOXL’s current price of $1.70, three dollars and change seems to be far away. However, the 52-week high is $4.65. (5)
Overall: Boxlight Corporation (BOXL) appears to be benefitting from remote learning for students across the county. Shares offer attractive upside based on the company’s current price to sales ratio and 2021 revenue forecasts, even more at the industry’s average valuation. Insiders buying the stock is an indication they see value at the current price level.
BOXL could be appropriate for high risk/ high reward investors.
2 – https://finance.yahoo.com/quote/BOXL/profile?p=BOXL
3 – Schooling During the COVID-19 Pandemic (census.gov)
4 – https://finance.yahoo.com/quote/BOXL/analysis?p=BOXL
5 – https://finance.yahoo.com/quote/BOXL?p=BOXL