Insider buying in Vestis (NYSE: VSTS), Shenandoah Telecommunications (NASDAQ: SHEN), and Treace Medical Concepts (NASDAQ: TMCI) signals a bottom for these stocks. All have been under pressure; all gave the market reason to fall, but the price declines triggered insider buying, and there are catalysts for higher share prices in the year ahead.
Insider Buying Spree at Vestis
Vestis shares plunged following the Q2 report, setting up a buying opportunity for insiders. Insiders, who haven’t bought many shares since the IPO and spin-off from Aramark, came out in droves to buy in May. Buyers include several directors, two EVPs, the CFO, and a major shareholder.
That shareholder is Corvex Management, founded in 2010 as a value investor/activist investor. Its activity in Q2 was robust, and its holdings increased significantly. Insidertrades.com reports nearly 19 million shares, or almost 15%, making it the largest shareholder. Other large shareholders include Vanguard, with roughly 15 million shares, and Fmr Llc, with 6 million.
The cause for the market reaction was weaker-than-expected results, a significant YoY contraction compared to peers' growth, and reduced guidance. The news sparked a round of analyst revisions that shaved 35% of the stock price, but there is a silver lining. Trading at 20x earnings, it is cheap relative to peers, and it is producing free cash flow.
Highlights from the balance sheet include triple-digit YoY increases in cash flow and FCF, debt reduction, and reduced leverage. The company is still more leveraged than its peers, but additional improvements are expected this calendar year. The opportunity for investors is two-fold, including a return to growth and potential for takeover. The company is a perfect takeover target for Cintas and a merger target for Unifirst, a move that could unlock shareholder value.
Impact of Insider Buying on Shenandoah Telecom's Stock
Shenandoah Telcom is a small service provider and cell tower operator in the mid-Atlantic. Its business has struggled over the past few years, but a turnaround is in place. The company is leaning into fiber optic broadband services and is on track to return to growth soon. The latest results were tepid, with only 3% top-line growth, but the fiber optic segment grew by about 80%, and the forecasts for next year are improving.
Coincidentally, the insiders started buying the stock about three days after the Q1 results. The activity is noteworthy because it is the first in six quarters and is robust. Buyers include several purchases by the CEO, an SVP, a VP, a CFO, a COO, and a director. Together, insiders own about 4.37% of the stock, and institutional support is also present. Institutions own a little more than 60% of the stock and have been buyers this year.
A single analyst is covering this stock in 2024: H. Khorsand of BWS Financial. Mr. Khorsand is the principal operator at BWS Financial (Beating Wall Street). He reiterated a Buy rating and $26 price target, which is 50% above the current action.
Analyzing Treace Medical Concepts' Recent Insider Activity
Treace Medical Concepts has trended lower since its IPO as increasing competition sapped the bullish sentiment. The latest results were solid and included a growth guidance update but at a slower pace than before. The takeaway is that share prices extended their downtrend and set a new low, triggering the insiders to buy. The insider activity is notable because it is the first insider activity in a year and the first buying in almost two years, suggesting a deep value for investors. The buying is more significant because insiders already owned about 20% of the stock; there was no need to buy more.
The analysts' sentiment is interesting. The company, which produces surgical devices for foot ailments, has seven analysts tracking it, and six of them updated following the release. They trimmed their sentiment and cut their price targets but are still rating it at Hold and see value in the stock.
