Last week’s insider buying roster was one of the weakest we’ve seen in a while, mostly a bunch of habitual buyers, small timers, non-executives and institutions adding stock in a slow week.
We found one, but a very interesting insider purchase that stood out from the rest. RCM Technologies, Inc.’s (RCMT) Chief Financial Officer (CFO), Treasurer & Secretary, Kevin D. Miller bought 150,000 at $1.20. (1) Now, in the grand scale of insider buying, $180,000 isn’t all that much compared to the largest executive buy of week, $1.66 million. However, when you consider Miller’s annual compensation is $406,830, spending near half of his income gives $180k a whole lot of context.
It’s been almost 12-years since Miller headed to the open market and his checkbook. The last time he purchased stock was in late November and early December 2008. Back then he accumulated 277,115 shares for $256,548 at a cost average of $0.93 (1-4 reverse split adjusted (2)). Two-years later, RCM Tech were trading at more than $5 (split adjusted. Non-split adjusted, his buy would have been close to $0.35 per share with the stock trading close to $1.60 within two-years).
Maybe Miller is looking at Wall Street’s earnings per share estimates for 2021. The consensus is that Engineering & Construction will turn a profit of $0.33 per share on sales of $186.1 million. (3)
In the last five-years, RCMT’s price to earnings (P/E) range was nearly as wide as Guns N’ Roses singer Axl Rose’s vocal range (who supposedly has the greatest range of popular singers (4)). The small cap company’s P/E bottomed out at 5.21, maxed out at 50.55, and averaged 16.95.
If the industrial traded at the average P/E, it would trade at $5.59 based on 2021’s consensus earnings. At the low P/E, shares would price out $1.72. As we type, the stock trades at $1.89. Meanwhile, the average stock in the peer group trades at 30.4 times earnings.
Since 2015, the business and technology solutions company has been valued at an average of 0.31 times sales (P/S) with a minimum of 0.08 and a highwater mark of 0.48. Today, the street is paying 0.11 times sales and an average of 4.8 for the industry.
If management meets analysts’ expectations of $186.1 million in 2021, and trades at the average P/S ratio, the stock will trade at $5.11. Hmm, that’s in line with the average P/E target price.
Outlook: Kevin Miller’s insider buying record, RCM Technologies, Inc.’s (RCMT) recent P/E and P/S history, and consensus earnings and sales projections suggest there could be a lot of upside in RCMT stock in the next 12-to-18 months. If they hit the street’s EPS target of $0.33 per share, downside could be extremely limited based on the company’s five-year low P/E.
Obviously, stocks that trade under $2 are speculative and appropriate for high risk investors. In this case, the reward to risk ratio appears to heavily favor bulls over bears.