When stocks fall in price, it’s frequently a signal for renewed investor interest. After all, low share prices offer a chance to live up to the old market advice, ‘buy low and sell high.’ What investors need is some way to tell the underlying reasons for a drop in share price, whether it bodes well or ill for the stock.
One of the best stock signals comes from corporate insiders, the company officers who hold positions of high responsibility – to their Boards, and to their peers, and to their shareholders and customers – for bringing in the maximum returns. Their main focus is on keeping the company healthy, and their positions give them access to knowledge that the general public just hasn’t got. And that knowledge will inform their trading decisions when they trade their company’s stock.
Investors should keep on the lookout for informative trades by the insiders, both buys and sells, especially when the stock looks beaten down. Just because a company’s shares have slipped in price doesn’t necessarily mean that the stock is unsound, or should be avoided as an investment – and the insiders are in the best place to know that for certain. So, when retail investors see insiders buying large in a stock that’s trading at a low point, that’s a signal to heed.
We’ll heed that signal. Using the TipRanks Insiders’ Hot Stocks tool, we’ve looked up two stocks that show the combination of a beaten down price, a Strong Buy consensus rating from the analyst community, plenty of upside potential, and recent informative buys from the insiders. Here are the details.
Remitly Global (RELY)
We’ll look first at Remitly Global, a financial services company specializing in facilitating international transfer payments. Remitly ensures security for both sender and receiver, allowing for safe and accurate transactions. It’s an essential niche in a global economy where international remittance payments from immigrants and migrant workers are big business. Remitly bases its operations on a mobile app, allowing users to conduct transactions via smartphone for lower fees than banks offer.
Remitly went public in late September, with an IPO that saw 12 million shares hit the market at $43 each, slightly above the expected initial pricing range of $38 to $42. The company raised almost $523 million in gross capital, and seemed poised to jump – but the stock has since fallen about 60%.
The fall in share price has come even as the company reported solid results in its first public quarterly financial report. Revenue grew 69% yoy, to reach $121.2 million, growth that was driven by increases in the customer base and the average revenue per customer. On the first, Remitly saw its active customers grow 51% yoy to 2.6 million, and on the second, customers are spending more through the app. Remitly reported that average revenue per customer was up 12% from the year-ago quarter. The volume of funds sent through the system grew 61%, to $5.2 billion for the quarter.
On the negative side, Remitly is the upstart in the remittance industry, and while its mobile application is novel, it faces an uphill battle against established players like Western Union and MoneyGram. These companies have known reputations and commanding advantages in market share; their weakness is a dependence on in-person services, a drawback in the ‘corona era’ which Remitly’s mobile app bypasses.
On the insider trading, sentiment is positive, pushed by two officers who have made large, recent purchases. The first, William Kazuo Bryant, serves on the Board of Directors and in two purchases this month he picked up 12,800 shares, spending over $245,000 on the stock. The second purchaser was Matthew Oppenheimer, the President and CEO of Remitly. He spent $244,470 on 13,750 shares of company stock.
This stock has caught the attention of JPMorgan’s 5-star analyst Tien-tsin Huang, who says of RELY, “We believe shares are oversold and misunderstood. We see RELY as a sustainable 30+% revenue grower in providing digital remittances to immigrants, taking share from legacy providers from a position of strength in terms of pricing and customer trust with upside potential from new products and partners (including crypto).”
Huang’s comments back his Overweight (i.e. Buy) rating, and he sets a $57 price target which implies an impressive upside of 189% for the next 12 months. (To watch Huang’s track record, click here)
It’s clear that Wall Street hasn’t panicked on RELY shares, and is in agreement with the JPMorgan view – the stock has 8 recent reviews, and they are all positive, giving a unanimous Strong Buy consensus rating. The average price target of $47 suggests a one-year upside of 139% from the current trading price of $19.66. (See RELY stock analysis on TipRanks)
Next up is HealthEquity, a leader in the field of health savings account administration. This company has an IRS designation as a non-bank health savings trustee, making it eligible to manage health savings accounts regardless of the institution in which the funds are deposited. Healthcare is a growing sector of the economy, and health savings accounts are an increasingly popular way of sequestering funds to cover costs, giving HealthEquity a strong niche for the business. The company works with employers, health plans, and benefit advisors to create savings programs for end users.
HealthEquity shares have dropped sharply after the Dec 6 release of the fiscal 3Q22 results. The stock is now down 52% from the peak it reached in late January. At first glance, this may prompt some questions, as the company met expectations on earnings. At 35 cents, EPS was in-line with the forecast, although it was down 14% year-over-year.
The real hits came from the revenue and the forward guidance. At the top line, the company reported $180 million; this was essentially flat from the year-ago quarter. Worse, the revenue missed expectations by over $5 million.
On the forward guidance, management trimmed both revenue and earnings estimates. At the top line, the company is predicting full-year fiscal 2022 revenues between $750 million and $755 million, a reduction of $7.5 million at the midpoint. On earnings, the company cut the forecast from the $1.45 to $1.50 range to a range of $1.30 to $1.35, a midpoint cut of 15 cents per share.
These cuts spooked investors, prompting a selloff that saw the stock lose 24% in one day.
The company officers, however, are willing to stick with HQY. Over the past 13 days, no fewer than three directors and the company President/CEO have made large, informative buys of HQY shares.
Start with the Directors. Stuart Parker bought 25,000 shares, paying $1.07 million and increasing his holding to $1.23 million. Adrian Dillon spent more then $500,000 on 12,375 shares, to boost his holding to $1.78 million. And Evelyn Dilsaver made a 5,018 share purchase for just over $199,000. Her stake in the company now exceeds $990,000. The largest purchase, however, came from Jon Kessler, President and CEO. He bought up 100,000 shares for $1.4 million, and now holds a total of $14.3 million worth of company stock. Together, these purchases swung the insider sentiment on HQY strongly positive.
RBC analyst Sean Dodge keeps an even strain, saying: “The downward guidance revision likely caught most people by surprise; however, the strength in the core HSA business appears to be continuing into year-end… all of the pressures impacting the guide came from the CDB side of the business, and thus should be transient… Longer-term, we remain bullish and believe the company’s unmatched breadth/scale will position it to capture more share in a market with substantial growth runway ahead.”
Dodge sees HQY recovering in the coming months, and rates the stock an Outperform (i.e. Buy), with a $70 price target. Investors stand to take home about 60% gain, should the target be met over the next 12 months. (To watch Dodge’s track record, click here)
Overall, this stock gets a firm seal of approval from Wall Street, with a Strong Buy consensus rating based on 8 Buys vs. 2 Holds. The stock is selling for $43.87, and the average price target of $63.67 indicates room for ~45% upside in the year ahead. (See HQY stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.