Insider buying and selling trends can be a signal to investors on what a management team may view as the future prospects of a company. At 5i Research, while we like to see insider buying we particularly like to see management teams holding a lot of shares over the long-term. This aligns management with the shareholders and if management is buying more shares on top of already holding a material number of shares, all the better. Let's take a look at two growth stocks we cover at our investment research firm, 5i Research, with high insider ownership. Readers can get access to these full reports through a one-month no commitment free trial here.
Savaria Corp.
Savaria (SIS) produces and sells elevators, lifts, adaptive vehicles and more recently medical products such as cushions, beds, and furnishings through its recent purchase of Span America. Savaria caters to an aging demographic that will have accessibility needs but are still willing and able to live at home. The products that SIS offers allow an individual to remain in their home for longer and has built a suite of products that address their customers' needs from getting in and out of the car, to the house, and even getting into bed.
Many investors look at the stock and see a company trading at roughly 26 times forward earnings and up over 20% over the last year and immediately consider it to be too expensive. Savaria, however, has been an 'expensive' stock for years now. The management team has a proficiency for making value-added acquisitions at attractive multiples and generating organic growth from those purchases on top of the acquisition-based growth. So, while the valuation looks expensive on absolute terms, when we consider the growth potential from accretive acquisitions, analyst expectations of 45% revenue growth next year and a dividend that has grown at 16% over five years, Savaria starts to look much more intriguing. We initiated coverage on SIS at $5.16 (it now trades in the $17 range) and have only liked the company more over the years.
One of the factors that first caught our attention with SIS was the high insider ownership of the company. The Bourassa family holds and has continued to hold a high amount of the outstanding shares through the rise of the company's shares. In total, the family holds over 30% of the shares outstanding. This is a large proportion of a $716 million company. Some other factors that may be a point of interest for investors is that Savaria pays a monthly dividend yielding ~2% and now generates over half of their revenues from the United States.
Kinaxis Inc.
Kinaxis (KXS) is an Ottawa based technology company that offers a software-as-a-service platform focused on the logistics needs of companies. Kinaxis has found success in improving the logistics and supply chain function at companies big and small across the globe. We first started covering Kinaxis back in June 2016 at a price of $51.62 and the shares have since grown to $81.51 while the prospects continue to look great.
Similar to Savaria, the shares do look expensive with it trading at roughly 8 times next year's sales. However, the business is a higher margin one with potential to sign large contracts that can grow in value over time. Kinaxis also seems to be stealing market share from larger companies such as SAP which we think puts a bit of a takeover target on the company. Add in an expected revenue growth in the 20% range for each of the next three years and a management team that is doubling down on their growth by investing in their sales and marketing initiatives and it is easy to see why this premium valuation is justified. KXS has also beat earnings estimates by nearly 30% for the last three quarters.
On insider ownership, while the holdings are not quite as high as we see in Savaria, management still holds a material number of shares. Douglas Colbeth who was the CEO of Kinaxis early on (and now Chairman), owns 2.2% of the outstanding shares valued at roughly $33 million. The current CEO, John Sicard, owns $2.7 million in shares (0.17%) and Richard Monkman, the CFO of KXS, owns $10.3 million worth of shares or 0.86% of shares outstanding. At first glance, if we look at the proportion of outstanding shares, an investor may think that the insider ownership is 'low' at KXS but in dollar terms, management exposure to the shares of company is high and material so interests of management and shareholders should be well aligned.
In our next look at stocks with insider ownership, we are going to look at two value stocks with high insider ownership. Don't forget to take advantage of our one-month free trial to 5i Research to read reports on Kinaxis and Savaria and numerous other small and mid-cap Canadian stocks. Members also get access to model portfolios, forums and investor questions and answers.
Ryan Modesto, CFA is CEO of 5i Research Inc.The author does not hold a position in any stocks mentioned. Employees of 5i Research cannot trade in Canadian stocks in order to remain truly conflict-free.