The Amazing Spider-man gets that tingle, spidey-sense, and it alerts him that something is about to happen. In the case of the web-spinning superhero, the battle becomes good versus evil with his sense warning him of the dark side.
Sometimes when combing through the roster of insider buying, we get a similar tingle, a sense that something is going on. Unlike Peter Parker’s warning of bad things to come, our tickle is more of a positive premonition.
Cars.com Inc. (CARS) gave us goosebumps like your favorite team scoring in the final seconds to bring home the W. Seven. Seven insiders decided to buy the digital automotive marketplace’s stock last week. The Chief Executive Office (CEO), The Chief Financial Officer (CFO), The Chief Legal Officer (CLO) and four Directors all bought CARS. Can you feel the tingle?
Together, the seven insiders purchased 50,413 shares for a total outlay of $503,800.40. That’s not a ton of money; however, that is a cluster buy without question. CEO T. Alex Vetter was the biggest spender, putting out $203,800. CLO, James F. Rogers was next on the leaderboard of buyers at $99,900.
To start August, CARS reported second quarter financial results that blew out a tire- makes that all tires. Shares skid off the road and plummeted from $18ish before the financial review to under $8 in six trading days. We hope shareholders were wearing their seatbelts.
Making matters worse, if that’s possible, management had been seeking a buyer and reported that the “process did not yield actionable options for a sale of the company. As a result, we determined that the best path forward is to execute on our stand-alone strategic plan and continue to evaluate opportunities to create shareholder value.” Bad earnings, no buyer = not good, as evidenced by the $10 hit.
All was not bad on the quarterly conference call as Vetter told listeners, “In the second quarter, we achieved 16% growth in traffic with 13% growth in unique visitors,” and “we are taking market share throughout 2019.” Both are positives for a digital business model.
Interestingly, Zacks.com zeroed in option activity for the stock’s August 2019 $17.50 put options. The article says, “Investors in Cars.com Inc. CARS need to pay close attention to the stock based on moves in the options market lately. That is because the Aug 16, 2019 $17.50 Put had some of the highest implied volatility of all equity options today.” Zacks added, “Clearly, options traders are pricing in a big move for Cars.com shares.”
At nearly the same time, the seven insiders stepped in and said that’s enough with their wallets. Prior to the recent shopping spree, minus on buy purchase, insiders either sold or exercised stock options dating back to the start of 2018.
It doesn’t take much imagination to determine that the seven likely believe CARS shares are underpriced at around $10 (all purchases happened between $9.23 and $10.13.) As of August 16, 2019s close, CARS price was $9.24.
That’s nothing compared to its book-value of $23.53 per share. That means the online car seller trades for just 0.39 times the total value of its assets, minus the company’s outstanding liabilities. 2 The current price-to-book-value (P/B) is just a touch higher than the 10-year low of 0.39. In the last decade, investors were willing to pay an average of 1.12 times book value. At the 10-year average, CARS is a $26.35 stock.
CARS is also trading at a five-year low price-to-sales (P/S) ratio of just 0.95. Since 2014, shareholders paid an average of 2.79 times revenue. For 2020, analysts forecast revenue of $627.27 million. Using a P/S ratio of just one, the stock would price out at $9.41, basically breakeven. At the five-year average, its price tag jumps to $26 and change.
The Play: The cluster of Cars.com Inc.’s (CARS) insiders appear to be bottom fishing, setting their marker for value at approximately $10. Long-term investors might consider CARS rebound play as it’s trading at multi-year lows for price-to-sales and price-to-book valuations.
Unless something changes drastically, its hard to see CARS in the mid-$20s. However, if the company continues to take market share, a move back to its falloff point of $17ish in the next 12-18 months doesn’t seem to be too difficult of a road to travel.