Insider Weekends: Insiders Of The Simply Good Foods Company Are Simply Back At It Again

Welcome to edition 513 of Insider Weekends. This must be the most hated market rally in recent history. Most market participants I talk to or follow don’t see this as a sustained move up and find it hard to believe the bear market is over. Large cap stocks represented by the S&P 500 have recovered significantly faster than their smaller brethren that live in the Russell 2000 index. The Nasdaq is down less than 4% for the year. Although if you look beyond companies like Amazon.com that have a large impact on indexes like the Nasdaq, most companies are still down significantly from their peaks earlier this year.

The overall news related to COVID-19 does appear to be positive with Switzerland, which had the second largest number of cases per capita, planning on starting to reopen its economy in phases on April 27th. The curve in California also points to a flattening much earlier than expected as you can see from this Twitter thread by the Chair of the UCSF Department of Medicine. The key risks we continue to face is reopening the economy too soon or the virus hitting us in a second wave later this year. There was also some positive news about Gilead’s antiviral drug Remdesevir showing encouraging early results in a trial at the University of Chicago.

Some folks find it hard to believe this bear market is behind us because the stimulus program for small businesses appears to be oversubscribed and many businesses applying for it are not getting the loans, another 5.2 million Americans filed for unemployment benefits last week pushing the unemployment rate to around 17% and the long-term negative impact on service or retail oriented businesses until a cure or vaccine is found. I still feel the risk remains to the downside but if you take a long view, there are businesses out there that look very attractive if they can weather the storm. As I wrote four weeks ago, I started unwinding some of the hedges I put in place in early February and started nibbling slowly on the long side by starting both new positions as well as adding to a select few existing positions.

Insider buying decreased last week with insiders purchasing $48.84 million of stock compared to $65.49 million in the week prior. Selling increased with insiders selling $541.19 million of stock last week compared to $442.63 million 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 went up to 11.08. In other words, insiders sold more than 11 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the prior week, when the ratio stood at 6.76. 

Insider Sector Heat April 17, 2020

Insider Sector Heat April 17, 2020 (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. JPMorgan Chase & Co. (JPM): $95.18

Director Stephen B. Burke acquired 75,000 shares of JPMorgan, paying $87.99 per share for a total amount of $6.59 million. These shares were purchased indirectly by a GRAT.

Jamie Dimon’s letter to shareholders this year discusses the COVID-19 situation in great detail and is a good read.

You can view the list of recent insider transactions for JPMorgan Chase & Co. here.

P/E: 10.7 Forward P/E: 10.87 Industry P/E: 7.52
P/S: 2.83 Price/Book: 1.25 EV/EBITDA: N/A
Market Cap: $289.97B Avg. Daily Volume: 22,994,553 52 Week Range: $76.91 – $141.1

2. The Simply Good Foods Company (SMPL): $18.99

Shares of this packaged foods company were acquired by 5 insiders:

  • Chairman of the Board James (Jim) M. Kilts acquired 47,089 shares, paying $16.63 per share for a total amount of $783,122. Mr. Kilts increased his stake by 5.70% to 873,406 shares with this purchase.
  • Director Brian K. Ratzan acquired 15,000 shares, paying $16.00 per share for a total amount of $240,000. Mr. Ratzan increased his stake by 22.64% to 81,254 shares with this purchase.
  • Director Michelle P. Goolsby acquired 10,000 shares, paying $16.73 per share for a total amount of $167,350. Ms. Goolsby increased her stake by 251.89% to 13,970 shares with this purchase.
  • Director Clayton C. Daley acquired 5,000 shares, paying $15.97 per share for a total amount of $79,850. Mr. Daley increased his stake by 7.14% to 75,000 shares with this purchase.
  • Director Robert G. Montgomery acquired 3,000 shares, paying $15.97 per share for a total amount of $47,916. Mr. Montgomery increased his stake by 6.59% to 48,544 shares with this purchase.

This is the second week in a row insiders of Simply Good Foods have purchased stock. We wrote about the company in January after the Chairman of the Board, the CFO and a director purchased shares at much higher prices. We wrote the following about the company after that cluster of purchases,

If you wanted to own a portfolio of packaged food products and specifically snack food products, The Simply Good Foods Company appears to be the ticket. The company was created by combining Atkins Nutritionals with a special purpose acquisition company (SPAC) called Conyers Park Acquisition Corp. The company currently owns three brands including Simply Protein, Quest Nutrition (acquired November 2019) and Atkins, and plans to expand its brand portfolio through acquisitions.

 

Simply Protein

Simply Protein

I was shocked to see the company valued at 31 times EBITDA and more than 4 times sales. These are asset-light software company valuations and not the kind of valuations you typically see for a snack food business. However as you dig deeper into the company you realize why the market is valuing the company so richly. Last quarter, their revenue growth was in the double digits excluding the impact of the Quest acquisition and adjusted EBITDA grew 19%. Some of the valuation is also being driven by the team that is involved with the company. Conyers Park was sponsored by an affiliate of Centerview Capital, an investment company founded in 2006 by Jim Kilts.

Mr. Kilts now serves as the Chairman of Simply Good Foods Company and was previously the Vice Chairman of the Board at The Procter & Gamble Company. Prior to that, he was the Chairman of the Board, Chief Executive Officer and President of The Gillette Company before the company’s merger with P&G in October 2005. He began his career at General Foods and later transitioned to leadership positions at Kraft Foods and Nabisco.

You can view the list of recent insider transactions for The Simply Good Foods Company here.

P/E: 67.58 Forward P/E: 18.8 Industry P/E: 23.52
P/S: 2.75 Price/Book: 1.51 EV/EBITDA: 21.02
Market Cap: $1.81B Avg. Daily Volume: 1,504,908 52 Week Range: $14.08 – $31.34

3. KeyCorp (KEY): $10.81

President and COO Christopher M. Gorman acquired 100,000 shares of this regional bank, paying $10.36 per share for a total amount of $1.04 million. Mr. Gorman increased his stake by 19.73% to 606,941 shares with this purchase.

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

P/E: 7.93 Forward P/E: 7.46 Industry P/E: 7.52
P/S: 1.87 Price/Book: 0.68 EV/EBITDA: N/A
Market Cap: $10.42B Avg. Daily Volume: 14,058,114 52 Week Range: $7.45 – $20.53

4. Huntington Ingalls Industries, Inc. (HII): $195.96

Director Philip M. Bilden acquired 3,643 shares of this military shipbuilding company, paying $192.37 per share for a total amount of $700,804. These shares were purchased indirectly by P. Bilden Associates LLC.

You can view the list of recent insider transactions for Huntington Ingalls Industries, Inc. here.

P/E: 14.78 Forward P/E: 13.33 Industry P/E: 22.49
P/S: 0.9 Price/Book: 5.03 EV/EBITDA: 9.57
Market Cap: $7.98B Avg. Daily Volume: 427,127 52 Week Range: $147.14 – $279.71

5. Ryman Hospitality Properties, Inc. (RHP): $27.95

Chairman & CEO Colin V. Reed acquired 21,900 shares of this hotel REIT, paying $27.16 per share for a total amount of $594,828. Mr. Reed increased his stake by 2.61% to 860,842 shares with this purchase.

You can view the list of recent insider transactions for Ryman Hospitality Properties, Inc. here.

P/E: 9.95 Forward P/E: 10.79 Industry P/E: 28.58
P/S: 0.96 Price/Book: 2.35 EV/EBITDA: 8.43
Market Cap: $1.54B Avg. Daily Volume: 974,398 52 Week Range: $13.25 – $91.57

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

Notable Insider Sales:

1. Copart, Inc. (CPRT): $72.1

Chairman of the Board Willis J. Johnson sold 1,000,000 shares of this online auctions and vehicle remarketing services provider for $71.32, generating $71.32 million from the sale. These shares were sold indirectly by a trust.

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

P/E: 23.45 Forward P/E: 25.39 Industry P/E: 36.33
P/S: 7.57 Price/Book: 7.93 EV/EBITDA: 19.24
Market Cap: $16.85B Avg. Daily Volume: 2,393,643 52 Week Range: $55.69 – $104.88

2. Take-Two Interactive Software, Inc. (TTWO): $124.44

Chairman, CEO Strauss Zelnick sold 219,856 shares of this video gaming company for $119.05, generating $26.17 million from the sale. These shares were sold indirectly by various entities.

You can view the list of recent insider transactions for Take-Two Interactive Software, Inc. here.

P/E: 42.07 Forward P/E: 28.54 Industry P/E: 45.36
P/S: 4.92 Price/Book: 5.56 EV/EBITDA: 26.78
Market Cap: $14.11B Avg. Daily Volume: 2,471,733 52 Week Range: $89.89 – $135.7

3. BlackRock, Inc. (BLK): $476.87

President Robert Kapito sold 88,799 shares of this asset management company for $476.98, generating $42.36 million from the sale.

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

P/E: 17.67 Forward P/E: 16.64 Industry P/E: 14.47
P/S: 4.97 Price/Book: 2.21 EV/EBITDA: 13.35
Market Cap: $74.02B Avg. Daily Volume: 1,004,832 52 Week Range: $323.98 – $576.81

4. Workday, Inc. (WDAY): $149.3

Shares of this software application company were sold by 6 insiders:

  • Chief Executive Officer Aneel Bhusri sold 101,577 shares for $146.21, generating $14.85 million from the sale.
  • Co-President & CFO Robynne Sisco sold 21,984 shares for $145.06, generating $3.19 million from the sale.
  • COO & Executive Vice President James Bozzini sold 11,145 shares for $146.16, generating $1.63 million from the sale.
  • Co-President Gomez Luciano Fernandez sold 9,205 shares for $145.98, generating $1.34 million from the sale.
  • Director Michael A. Stankey sold 857 shares for $145.81, generating $124,957 from the sale.
  • Director David A. Duffield sold 177 shares for $145.32, generating $25,722 from the sale.

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

P/E: N/A Forward P/E: 54.69 Industry P/E: 43.82
P/S: 9.55 Price/Book: 13.93 EV/EBITDA: -151.64
Market Cap: $34.64B Avg. Daily Volume: 2,669,890 52 Week Range: $107.75 – $226.83

5. C.H. Robinson Worldwide, Inc. (CHRW): $74.23

Executive Chairman John Wiehoff sold 221,267 shares of this third party logistics company for $71.09, generating $15.73 million from the sale.

You can view the list of recent insider transactions for C.H. Robinson Worldwide, Inc. here.

P/E: 17.72 Forward P/E: 19.48 Industry P/E: 28.09
P/S: 0.64 Price/Book: 5.99 EV/EBITDA: 12.73
Market Cap: $9.75B Avg. Daily Volume: 2,080,559 52 Week Range: $56.94 – $91.97

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: I hold long positions in Gilead Sciences (GILD) and Workday (WDAY). 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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