The former CEO of KMG Chemicals sold $0.9 million worth of stock on Wednesday. Not notable at face value but we found huge amounts of insider activity when digging further.
Insider Selling: KMG Chemicals
What’s more interesting is that Mr. Hatcher has sold $39.3 million worth of stock since September 22nd according to recent SEC filings. That’s roughly 4.3% of the company’s total market capitalization. The table below highlights his activity in February alone.
|Insider Trading||Relationship||Date||#Shares||Value ($)|
|David Hatcher||Chairman Emeritus||Feb 07||15,000||$883,650|
|David Hatcher||Chairman Emeritus||Feb 06||15,000||$856,500|
|David Hatcher||Chairman Emeritus||Feb 05||15,000||$880,950|
|David Hatcher||Chairman Emeritus||Feb 02||15,000||$877,500|
|David Hatcher||Chairman Emeritus||Feb 01||15,000||$897,600|
It’s important to note that there is nothing illegal about these transactions as they are being sold pursuant to a 10b5-1 Plan. Rule 10b5-1 is established by the SEC to allow insiders of publicly traded corporations to set up a trading plan for selling stocks they own.
Mr. Hatcher was selling shares in batches of 3,000 but then increased this to batches of 15,000 shares on December 26th. Again, nothing illegal about this but it is newsworthy considering the former CEO and current Chairman Emeritus has cut his total ownership level by nearly 50% in a matter of months.
KMG Chemicals’s Stock Price and Valuation
The company’s shares last traded at $58.88 as of Wednesday, approximately 86.6% of its 52-week high. The stock’s up 56.2% over the last year and 20.7% in the last six months. While the stock is near its high, could the recent insider transactions signal a troubling road ahead for shareholders?
Finbox.io applies pre-built valuation models to calculate a fair value for a given stock and uses consensus Wall Street estimates for the forecast when available. The company’s average fair value of $51.88 implies -11.9% downside and is calculated from 10 separate analyses as shown in the table above.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$50.32||-14.5%|
|5-yr DCF Revenue Exit||$49.63||-15.7%|
|Peer Revenue Multiples||$30.47||-48.2%|
|10-yr DCF EBITDA Exit||$68.67||16.6%|
|5-yr DCF EBITDA Exit||$75.79||28.7%|
|Peer EBITDA Multiples||$40.19||-31.7%|
|10-yr DCF Growth Exit||$58.87||0.0%|
|5-yr DCF Growth Exit||$61.82||5.0%|
|Peer P/E Multiples||$46.28||-21.4%|
|Dividend Discount Model (multi-stage)||$36.74||-37.6%|
While insider activity on its own is not necessarily a buy or sell signal, it may offer insight into how ownership and management feel about a company’s future prospects. Keeping an eye on the activities of insiders and institutions can help investors make more informed investment decisions.
I recommend you continue to research KMG Chemicals to get a more comprehensive view of the company by looking at:
Risk Metrics: how much interest coverage does KMG Chemicals have? This is a ratio used to assess a firm’s ability to pay interest expenses based on operating profits (EBIT). View the company’s interest coverage here.
Efficiency Metrics: how much free cash flow does KMG Chemicals generate as a percentage of total sales? Has it been increasing or decreasing over time? Review the firm’s free cash flow margin here.
Forecast: what is KMG Chemicals’ projected EBITDA margin? Is the company expected to improve its profitability going forward? Analyze the company’s projected EBITDA margin here.
Author: Andy Pai
Expertise: financial modeling, mergers & acquisitions
Andy is a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights:
- Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores.
- Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets.
Andy can be reached at firstname.lastname@example.org.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.