Insider Weekends: Mitchell Jacobson’s Unusually Large Purchase

We absolutely love running into a new company that was not on our radar before, especially after an opportunistic insider purchase by a long-serving director. Mitchell Jacobson ponied up $14.45 million last week to pick up 200,000 shares of MSC Industrial Direct, a company that supplies nearly 2 million products to industrial customers ranging from fasteners to inventory management tools. He also purchased 4,654 shares in May and 67,796 shares last February for $5.29 million. The prior 10 years before that he only sold shares, mostly related to options exercises and often held zero shares after his sales. This makes his rather large opportunistic purchase of the stock unusual.

Mr. Jacobson is currently the company’s non-executive Chairman and has been the Chair of the Board for 24 years. He also served as the company’s CEO for 10 years from 1995 to 2005. For a nuts and bolts kind of company, I was surprised to see gross margins of 42.9% and operating margins of 14.3% (fiscal Q3 2022). Revenue is expected to grow about 13% in fiscal 2022 (ending August 2022) to $3.67 billion and then moderate to $3.80 billion in fiscal 2023. The company has a modest $760 million net debt on its balance sheet excluding capital leases.

This is a Steady Eddy  kind of business trading at 10 times EBITDA. On the surface, the only thing that is exciting about the business at this time is this insider purchase and I plan to dig in further to see if I can better understand what is driving Mr. Jacobson’s sudden enthusiasm for the stock.

The other insider purchase that stood out was Bill Gurley’s 1 million share purchase of Stitch Fix (SFIX) at an average price of $5.43 per share. This is a significantly lower than what he paid for his October 2019 purchase at $20.83 per share. We wrote the following about the company in October 2019,

Stitch Fix is an online personal styling company where customers fill out a “style profile” and the company sends a customized shipment of clothes and accessories. Customers try out the assortment sent to them, keep what they like and send back the rest. In addition to the margins made on the clothes and accessories, the company also charges a $20 styling fee with each shipment.

When I first saw this purchase, I thought that Bill Gurley probably acquired the shares indirectly and that the actual investment was through San Francisco based venture capital firm Benchmark. Upon closer inspection of the form 4 filing it became evident that the purchase was a direct purchase and that partially explains the nearly 7% increase in Stitch Fix stock last week after this purchase was filed with the SEC.

Bill Gurley ranked third on Forbe’s Midas List for 2019 thanks to his successful investments in GrubHub, Nextdoor, Zillow, Stitch Fix and more notably Uber. When a successful venture capitalist with a CFA and a background that includes a four year stint on Wall Street as a research analyst purchases stock in a company that he has been involved with for several years, it piques my curiosity. This has been the only insider purchase at the company since it went public on November 17, 2017 at $15 per share.

Stitch Fix has had a tumultuous couple of years as a public company. While the company has grown revenue significantly over the last two years from $296 million in the quarter ended October 2017 to $432 million in its most recent fiscal Q4 2019 quarter ended July 2019, its stock has been hurt on account of competition from deep pocketed companies like Amazon and Nordstrom. It also happens to be one of the few E-commerce companies that happen to be consistently profitable with a cash rich balance sheet.

The company benefited from a shift to e-commerce early in the pandemic but revenue growth has recently slowed down and even went negative last quarter despite a new CEO at the helm during the last year and tweaks to their business model. I’ve personally never understood the allure of Stitch Fix’s business model and while I have followed the stock, I decided to stay away the last few years.

Welcome to edition 628 of Insider Weekends. Insider buying increased last week with insiders purchasing $52.71 million of stock compared to $20.83 million in the week prior. Selling also increased to $222.44 million compared to $206.52 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 dropped to 4.22. In other words, insiders sold more than 4 times as much stock as they purchased. The Sell/Buy ratio this week was favorable compared to the prior week when the ratio stood at 9.91.

Notable Insider Buys:

1. MSC Industrial Direct Co., Inc. (MSM): $75.1

Director Mitchell Jacobson acquired 200,000 shares of this industrial metalworking, maintenance and repair products and services distributor, paying $72.25 per share for a total amount of $14.45 million. Mr. Jacobson increased his stake by 276.05% to 272,450 shares with this purchase.

You can view the list of recent insider transactions for MSC Industrial Direct Co., Inc. here.

P/E: 13.93 Forward P/E: 11.94 Industry P/E: 17.46
P/S: 1.2 Price/Book: 3.24 EV/EBITDA: 9.75
Market Cap: $4.2B Avg. Daily Volume: 424,243 52 Week Range: $71.69 – $89.84

2. Annexon, Inc. (ANNX): $4.84

Director Muneer A. Satter acquired 2,453,988 shares of this clinical-stage biopharmaceutical company, paying $3.84 per share for a total amount of $9.42 million. These shares were purchased indirectly through a trust.

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

P/E: N/A Forward P/E: -1.39 Industry P/E: 28.09
P/S: N/A Price/Book: 0.93 EV/EBITDA: -0.01
Market Cap: $230.27M Avg. Daily Volume: 596,259 52 Week Range: $2.06 – $23.81

3. Stitch Fix, Inc. (SFIX): $5.56

Director William J. Gurley acquired 1,000,000 shares of this apparel chain, paying $5.43 per share for a total amount of $5.43 million. Mr. Gurley increased his stake by 86.97% to 2,149,762 shares with this purchase.

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

P/E: N/A Forward P/E: -4.06 Industry P/E: 11.53
P/S: 0.28 Price/Book: 1.54 EV/EBITDA: -10.39
Market Cap: $601.43M Avg. Daily Volume: 4,252,832 52 Week Range: $4.66 – $59.86

4. Rocket Companies, Inc. (RKT): $8.99

Shares of this tech-driven real estate, mortgage, and e-Commerce company were acquired by 2 insiders:

  • Chief Executive Officer Jay Farner acquired 114,900 shares, paying $8.69 per share for a total amount of $998,736. Mr. Farner increased his stake by 3.73% to 3,194,907 shares with this purchase.
  • Director Matthew Rizik acquired 12,400 shares, paying $8.69 per share for a total amount of $107,784. Mr. Rizik increased his stake by 5.06% to 257,502 shares with this purchase.

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

P/E: 4.99 Forward P/E: 11.24 Industry P/E: 9.51
P/S: 1.58 Price/Book: 1.97 EV/EBITDA: 4.2
Market Cap: $17.87B Avg. Daily Volume: 4,251,922 52 Week Range: $6.269 – $19.55

5. Dave & Buster’s Entertainment, Inc. (PLAY): $31.94

Chief Executive Officer Christopher Daniel Morris acquired 33,400 shares of this entertainment and dining venues operator, paying $30.54 per share for a total amount of $1.02 million. Mr. Morris increased his stake by 225.58% to 48,206 shares with this purchase.

You can view the list of recent insider transactions for Dave & Buster’s Entertainment, Inc. here.

P/E: 10.2 Forward P/E: 8.03 Industry P/E: 11.53
P/S: 1.05 Price/Book: 4.42 EV/EBITDA: 8.16
Market Cap: $1.56B Avg. Daily Volume: 1,250,111 52 Week Range: $29.597 – $52.535

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

Notable Insider Sales:

1. Airbnb, Inc. (ABNB): $94.66

Chairman of Airbnb.org Joseph Gebbia sold 250,000 shares of Airbnb for $95.32, generating $23.83 million from the sale. These shares were sold indirectly by a trust.

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

P/E: 74.54 Forward P/E: 38.8 Industry P/E: 11.53
P/S: 9.11 Price/Book: 12.72 EV/EBITDA: 59.79
Market Cap: $60.25B Avg. Daily Volume: 7,771,948 52 Week Range: $86.71 – $212.584

2. ChargePoint Holdings, Inc. (CHPT): $11.57

Shares of this electric vehicle (EV) charging networks and charging solutions provider were sold by 2 insiders:

  • Director Michael Linse sold 1,696,646 shares for $13.57, generating $23.02 million from the sale. These shares were sold indirectly by Linse Capital LLC.
  • Chief Accounting Officer Henrik Gerdes sold 43,606 shares for $12.07, generating $526,503 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

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

P/E: N/A Forward P/E: -20.66 Industry P/E: 17.46
P/S: 13.82 Price/Book: 8.38 EV/EBITDA: -12.68
Market Cap: $3.9B Avg. Daily Volume: 10,428,061 52 Week Range: $8.5 – $28.72

3. Paychex, Inc. (PAYX): $115

Shares of this integrated human capital management solutions provider were sold by 7 insiders:

  • Chairman and CEO Martin Mucci sold 21,631 shares for $116.80, generating $2.53 million from the sale.
  • Sr. Vice President Michael E. Gioja sold 4,009 shares for $116.80, generating $468,251 from the sale.
  • Sr. Vice President, CFO Efrain Rivera sold 3,875 shares for $116.80, generating $452,600 from the sale.
  • President and COO John B. Gibson sold 3,132 shares for $116.80, generating $365,818 from the sale.
  • Sr. VP of Sales Mark Anthony Bottini sold 2,341 shares for $116.80, generating $273,429 from the sale.
  • CLO, Secretary Stephanie L. Schaeffer sold 1,631 shares for $116.80, generating $190,501 from the sale.
  • VP/Controller Robert L. Schrader sold 1,191 shares for $116.80, generating $139,109 from the sale.

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

P/E: 29.95 Forward P/E: 26.26 Industry P/E: 23.02
P/S: 8.97 Price/Book: 13.42 EV/EBITDA: 20.2
Market Cap: $41.39B Avg. Daily Volume: 1,856,411 52 Week Range: $106.55 – $141.92

4. Interactive Brokers Group, Inc. (IBKR): $54.81

Chairman Thomas Peterffy sold 80,000 shares of this investment brokerage for $54.92, generating $4.39 million from the sale.

You can view the list of recent insider transactions for Interactive Brokers Group, Inc. here.

P/E: 19.32 Forward P/E: 12.05 Industry P/E: 9.51
P/S: 9.07 Price/Book: 2.19 EV/EBITDA: N/A
Market Cap: $22.84B Avg. Daily Volume: 903,456 52 Week Range: $52.18 – $82.83

5. Arista Networks, Inc. (ANET): $101.67

CTO and SVP Software Eng. Kenneth Duda sold 39,500 shares of this networking company for $102.28, generating $4.04 million from the sale. 20,000 of these shares were sold as a result of exercising options immediately prior to the sale.

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

P/E: 34.94 Forward P/E: 23.92 Industry P/E: 23.02
P/S: 9.89 Price/Book: 7.54 EV/EBITDA: 25.96
Market Cap: $31.24B Avg. Daily Volume: 1,947,301 52 Week Range: $85.18 – $148.57

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 and Plus members.

Disclaimer: I hold a long positions in Rocket Companies (RKT) and Airbnb (ABNB). 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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