Six separate executives and directors at Magnachip Semiconductor Corp (NYSE: MX) have bought 61,488 shares since Monday. The stock has lost 28.1% of its value in the last three months while the company’s fundamentals generally remain strong. Could the stock have hit its bottom?
Insider Buying: Magnachip Semiconductor Corp
A number of insiders have been buying shares of Magnachip Semiconductor Corp according to recent form 4 filings with the SEC. Notable insiders include Young-Joon Kim (CEO), Jonathan Kim (CFO), Woung Moo Lee (VP) among others, as shown in the table below.
|Insider Trading||Relationship||Date||#Shares||Value ($)|
|Woung Moo Lee||Executive VP||Feb 14||1,000||$9,100|
|Nader Tavakoli||Director||Feb 13||15,000||$136,050|
|Theodore Kim||Chief Compliance Officer||Feb 13||5,000||$45,438|
|Melvin Keating||Director||Feb 13||3,600||$32,432|
|Jonathan Kim||CFO||Feb 13||8,000||$72,598|
|Nader Tavakoli||Director||Feb 12||20,000||$188,600|
|Young-Joon Kim||CEO and Director||Feb 12||8,888||$81,325|
The fact that there were six separate insiders that bought shares in a span of three trading days is what propelled me to take a closer look at the company.
Potential Reasons For Insider Activity
MagnaChip Semiconductor Corp manufactures and sells analog and mixed-signal semiconductor products for consumer, computing, communication, industrial, automotive, and Internet of Things applications worldwide.
Analysts covering the stock often compare the company to a peer group that includes STMicroelectronics (NYSE: STM), Alpha and Omega Semiconductor Limited (Nasdaq: AOSL), Advanced Semiconductor Engineering (NYSE: ASX) and Broadcom Limited (Nasdaq: AVGO). Analyzing Magnachip Semiconductor Corp’s valuation metrics and ratios relative to its peer group offers insight into why insiders may be buying their shares.
Return on Invested Capital (ROIC) is used to evaluate the ability of a company to create value for all its stakeholders, debt and equity. MagnaChip Semiconductor Corp’s ROIC of 14.3% is above all of its peers: STM (8.1%), AOSL (3.2%), ASX (6.8%) and AVGO (4.8%).
Return on Equity (ROE) measures a company’s profitability in relation to the book value of Shareholders’ Equity. ROE is a measure of how effectively management makes investments to generate earnings for shareholders. Again, the company’s ROE of 13.5% is above all of its selected comparable public companies.
The consensus 12-month price target is the average of each individual sell-side Wall Street analyst. The consensus analyst upside or downside equals the percentage difference between the price target and the current stock price. The calculation is simply:
Upside = (Analyst Price Target / Stock Price) - 1
The company’s consensus analyst upside of 55.2% is above all of its peers.
MagnaChip Semiconductor Corp certainly looks attractive when comparing the company with similar public companies.
Has MagnaChip Semiconductor Corp’s Stock Hit A Bottom?
The company’s shares last traded at $9.65 as of Thursday. Although the stock is up 27.8% over the last year, shares are actually down -28.1% over the last three months.
While shareholders have recently lost significant value in their holdings, the insider transactions could signal a bottom.
In addition, finbox.io’s average fair value estimate of $14.47 implies 49.9% upside and is calculated from 4 valuation models as shown in the table below. Each analysis uses consensus Wall Street estimates for the projections when available.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF EBITDA Exit||$18.10||87.6%|
|Peer EBITDA Multiples||$15.94||65.2%|
|10-yr DCF Growth Exit||$12.02||24.6%|
|5-yr DCF Growth Exit||$11.80||22.3%|
How Should You Interpret this?
While executives are always happy to tell you all the reasons why their stock is a buy, their actions can tell a different story about the company’s future prospects. A trend of buying activity may indicate that insiders think the stock is going up over the upcoming time period, and are trying to buy before the price rises.
Keep in mind that insider activity is only one aspect of stock research and that there are other important items to consider. I recommend you continue to research Magnachip Semiconductor Corp to get a more comprehensive view of the company’s fundamentals by looking at:
Risk Metrics: what is MagnaChip Semiconductor Corp’s financial health? Find out by viewing our financial leverage data metric which plots the dollars in total assets for each dollar of common equity over time.
Efficiency Metrics: how much free cash flow does MagnaChip Semiconductor Corp generate as a percentage of total sales? Has it been increasing or decreasing over time? Review the firm’s free cash flow margin here.
Valuation: what is MagnaChip Semiconductor Corp’s EBITDA less CapEx multiple and how does it compare to its peers? This is a helpful multiple to analyze when comparing capital-intensive businesses. View the company’s EBITDA less CapEx multiple here.
Author: Matt Hogan
Expertise: Valuation, financial statement analysis
Matt is the lead reporter on Form 4 filings and general insider activity.
Matt Hogan is also a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock.
Matt can be reached at email@example.com.
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.