Insider Weekends: Luxury Brands On The Cheap

Welcome to edition 468 of Insider Weekends. Insider buying edged up a little last week with insiders purchasing $218.22 million of stock compared to $214.72 million in the week prior. Selling on the other hand decreased with insiders selling $1.02 billion of stock last week compared to $1.25 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week dropped to 4.69. In other words, insiders sold almost 5 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the prior week, when the ratio stood at 5.82.

Insider Sector Heat Map June 7, 2019

Insider Sector Heat Map June 7, 2019 (click to enlarge)

Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys:

1. Capri Holdings Limited (CPRI): $34.21

Shares of the company formerly known as Michael Kors were acquired by 2 insiders:

  • Chairman & CEO John D. Idol acquired 615,000 shares, paying $32.57 per share for a total amount of $20.03 million. Mr. Idol increased his stake by 150.05% to 1,024,867 shares with this purchase.
  • EVP, CFO & COO Thomas Jr. Edwards acquired 11,600 shares, paying $34.41 per share for a total amount of $399,212. Mr. Edwards increased his stake by 49.88% to 34,854 shares with this purchase.

Michael Kors acquired the luxury footwear company Jimmy Choo for $1.2 billion in 2017 and then the following year acquired Versace for $2.12 billion. After the acquisition of Versace, Michael Kors renamed the holding company Capri Holdings, while continuing to retain all three brands. The move was reminiscent of Coach’s decision to rename itself Tapestry after it acquired high-end shoe brand Stuart Weitzman in 2015 and Kate Spade in 2017.

As you can see from the chart below, the last year has not been kind to either company with Tapestry losing more than a third of its value and Capri losing nearly half its value.

Tapestry vs. Capri One Year Chart

Tapestry vs. Capri One Year Chart (source: Yahoo Finance)

When Capri reported fiscal fourth quarter 2019 results ended March 30, 2019, it provided a breakdown of revenue for all three brands with Versace growing revenue in the high single digits, Jimmy Choo reporting a 35% increase in revenue (constant currency basis) and Michael Kors increased it revenue by 1.8% (a decline of 0.4% after currency impacts were factored in). The company plans to more than double Versace’s revenue to $2 billion per year and increase Jimmy Choo’s revenue by over 60% to $1 billion a year.

While a return to high revenue growth could be welcomed by investors, there is a possibility the company might do so by diluting the brands as it did with Michael Kors. In a quest for growth, the company flooded the market with lower priced or highly discounted items that eventually hurt the brand’s image.

Coach did not make the same mistake but is struggling with anemic revenue growth. Coach saw revenue increase 1% last quarter, Kate Spade posted a 5% gain in revenue and Stuart Weitzman managed a 4% gain on a constant currency basis. Tapestry also announced a $1 billion share buyback program.

Net margins at both companies are comparable with Capri managing 10.37% net margins and Tapestry 11.78% net margins. Tapestry’s balance sheet is not leveraged despite its acquisitions and the company trades for 8 times EBITDA while sporting a 4.46% dividend yield (53% payout ratio). Capri carries over $2.3 billion in net debt on its balance sheet and trades for less than 7 times EBITDA. It does not pay a dividend.

If the trade wars show signs of simmering down, it would be worth exploring both these companies further, especially in light of these insider purchases.

You can view the list of recent insider transactions for Capri Holdings Limited here.

P/E: 9.56 Forward P/E: 6.9 Industry P/E: 34.76
P/S: 0.99 Price/Book: 2.13 EV/EBITDA: 6.81
Market Cap: $5.16B Avg. Daily Volume: 2,777,709 52 Week Range: $32.09 – $75.96

2. RE/MAX Holdings, Inc. (RMAX): $32.15

Director David L. Liniger acquired 122,911 shares of this real estate services company, paying $30.33 per share for a total amount of $3.73 million.

You can view the list of recent insider transactions for RE/MAX Holdings, Inc. here.

P/E: 21.58 Forward P/E: 13.68 Industry P/E: 19.71
P/S: 4.22 Price/Book: 1.18 EV/EBITDA: 4.11
Market Cap: $976.32M Avg. Daily Volume: 167,698 52 Week Range: $27.84 – $56.77

3. Revlon, Inc. (REV): $23.33

Director Ronald O. Perelman acquired 190,000 shares of this beauty care products company, paying $21.86 per share for a total amount of $4.15 million. These shares were purchased indirectly by MacAndrews & Forbes Incorporated.

You can view the list of recent insider transactions for Revlon, Inc. here.

P/E: N/A Forward P/E: -9.64 Industry P/E: 76.37
P/S: 0.47 Price/Book: N/A EV/EBITDA: 32.85
Market Cap: $1.2B Avg. Daily Volume: 160,003 52 Week Range: $14 – $29.62

4. American Airlines Group Inc. (AAL): $30.92

Shares of this airline were acquired by 7 insiders:

  • Chairman and CEO Douglas W. Parker acquired 50,000 shares, paying $28.09 per share for a total amount of $1.4 million. Mr. Parker increased his stake by 2.32% to 2,201,636 shares with this purchase.
  • Director John T. Cahill acquired 25,000 shares, paying $28.60 per share for a total amount of $714,972. These shares were purchased indirectly through a trust.
  • President Robert D. Isom acquired 15,000 shares, paying $27.75 per share for a total amount of $416,250. Mr. Isom increased his stake by 1.99% to 768,771 shares with this purchase.
  • EVP Corporate Affairs Stephen L. Johnson acquired 5,000 shares, paying $27.72 per share for a total amount of $138,581. Mr. Johnson increased his stake by 0.81% to 622,580 shares with this purchase.
  • EVP Chief Information Officer Maya Leibman acquired 5,000 shares, paying $27.63 per share for a total amount of $138,150. Ms. Leibman increased her stake by 2.05% to 249,248 shares with this purchase.
  • Executive VP and CFO Derek J. Kerr acquired 5,000 shares, paying $27.76 per share for a total amount of $138,820. Mr. Kerr increased his stake by 1.09% to 465,697 shares with this purchase.
  • EVP People and Communications Elise R. Eberwein acquired 5,000 shares, paying $27.76 per share for a total amount of $138,820. Ms. Eberwein increased her stake by 1.27% to 399,019 shares with this purchase.

You can view the list of recent insider transactions for American Airlines Group Inc. here.

P/E: 9.92 Forward P/E: 5.37 Industry P/E: 41.33
P/S: 0.31 Price/Book: N/A EV/EBITDA: 7.36
Market Cap: $13.75B Avg. Daily Volume: 6,474,801 52 Week Range: $27.02 – $44.93

5. Mellanox Technologies, Ltd. (MLNX): $111.65

Director Steve Sanghi acquired 20,000 shares of this semiconductor company, paying $110.54 per share for a total amount of $2.21 million. Mr. Sanghi increased his stake by 336.13% to 25,950 shares with this purchase.

This purchase is interesting in light of the fact that Nvidia (NVDA) is in the process of acquiring Mellanox Technologies in an all cash deal valued at $125/share. The big discount to the deal price is partially on account of concerns China might hold up the deal like it did with Qualcomm’s acquisition of NXP Semiconductors (NXPI).

You can view the list of recent insider transactions for Mellanox Technologies, Ltd. here.

P/E: 42.53 Forward P/E: 15.79 Industry P/E: 7.95
P/S: 5.35 Price/Book: 4.36 EV/EBITDA: 21.15
Market Cap: $6.12B Avg. Daily Volume: 1,462,263 52 Week Range: $65.68 – $121.13

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Walmart Inc. (WMT): $106.06

Shares of Walmart were sold by 2 insiders:

  • Director Robson S. Walton sold 1,014,826 shares for $105.33, generating $106.89 million from the sale. These shares were sold indirectly through a trust.
  • Executive Vice President Gregory S. Foran sold 19,487 shares for $105.00, generating $2.05 million from the sale.

You can view the list of recent insider transactions for Walmart Inc. here.

P/E: 37.11 Forward P/E: 21.21 Industry P/E: 37.06
P/S: 0.59 Price/Book: 4.46 EV/EBITDA: 11.56
Market Cap: $304.09B Avg. Daily Volume: 6,368,795 52 Week Range: $82.37 – $106.36

2. STERIS plc (STE): $138.02

Shares of this healthcare products company were sold by 5 insiders:

  • Director Richard Martin Steeves sold 213,197 shares for $135.70, generating $28.93 million from the sale. These shares were sold indirectly through a trust.
  • President & CEO Walter M. Rosebrough Jr. sold 119,000 shares for $132.56, generating $15.77 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • VP, Controller & CAO Karen L. Burton sold 8,887 shares for $134.83, generating $1.19 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • Director Loyal W. Wilson sold 8,289 shares for $135.74, generating $1.13 million from the sale. 3,113 of these shares were sold as a result of exercising options immediately prior to the sale.
  • Sr. VP, Gen Counsel, and Sec. John Adam Zangerle sold 1,500 shares for $131.77, generating $197,655 from the sale.

You can view the list of recent insider transactions for STERIS plc here.

P/E: 38.77 Forward P/E: 23.43 Industry P/E: 32.13
P/S: 4.2 Price/Book: 3.66 EV/EBITDA: 23.34
Market Cap: $11.67B Avg. Daily Volume: 527,595 52 Week Range: $99.14 – $138.87

3. Zayo Group Holdings, Inc. (ZAYO): $32.68

Shares of this bandwidth infrastructure solutions provider were sold by 2 insiders:

  • CEO Daniel Caruso sold 655,585 shares for $32.76, generating $21.48 million from the sale. These shares were sold indirectly by Bear Investments, LLLP.
  • Director Mary Catherine Morris sold 13,772 shares for $32.76, generating $451,171 from the sale.

You can view the list of recent insider transactions for Zayo Group Holdings, Inc. here.

P/E: 61.54 Forward P/E: 41.37 Industry P/E: 21.33
P/S: 2.98 Price/Book: 6.17 EV/EBITDA: 11.53
Market Cap: $7.7B Avg. Daily Volume: 6,212,541 52 Week Range: $20.27 – $39.66

4. Snap Inc. (SNAP): $13.87

Shares of this social media company were sold by 4 insiders:

  • Chief Executive Officer Evan Spiegel sold 1,493,180 shares for $11.74, generating $17.53 million from the sale.
  • Director Michael Lynton sold 25,000 shares for $13.21, generating $330,183 from the sale. These shares were sold indirectly by Lynton Foundation.
  • Chief Business Officer Jeremi Gorman sold 11,111 shares for $11.99, generating $133,221 from the sale.
  • Chief Financial Officer Derek Andersen sold 9,000 shares for $12.00, generating $108,000 from the sale.

You can view the list of recent insider transactions for Snap Inc. here.

P/E: N/A Forward P/E: -115.58 Industry P/E: 32.58
P/S: 14.63 Price/Book: 8.55 EV/EBITDA: -16.63
Market Cap: $18.59B Avg. Daily Volume: 27,100,319 52 Week Range: $4.82 – $14.47

5. Bruker Corporation (BRKR): $43.87

CEO, President Frank H. Laukien sold 400,000 shares of this scientific instruments company for $41.48, generating $16.59 million from the sale. These shares were sold indirectly by Mr. Laukien’s former spouse.

You can view the list of recent insider transactions for Bruker Corporation here.

P/E: 37.53 Forward P/E: 24.51 Industry P/E: 191.27
P/S: 3.57 Price/Book: 7.53 EV/EBITDA: 20.24
Market Cap: $6.88B Avg. Daily Volume: 800,809 52 Week Range: $26.1 – $44.47

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium members.

Disclaimer: Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.

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