Spin-offs with Insider Buying (August 2021)
This month, we have a good amount of insider buying!
Let’s go in alphabetical order.
Armstrong Flooring (AFI)
Armstrong Flooring is a name that I’ve followed for a while ever since it was spun out of Armstrong Worldwide.
The company is in the midst of a turnaround.
It recently sold a property in California for over $70MM which enabled it to de-lever significantly.
It is still losing money, but revenues are recovering, and it’s likely that profits will follow suit.
AFI is a low quality business, but it’s very cheap trading at 0.2x current sales.
In prior years, it traded as high as 0.8x sales. If it’s turnaround plan can continue, there will be massive upside for the stock.
Insiders are buying the stock aggressively in the open market.
BBX Capital (BBXIA)
BBXIA is a name that I (and my subscribers) have owned for a while.
It is my favorite type of special situation: a micro-cap spin-off.
At the time of the spin-off, it was trading at 40% of its cash and note receivable, and had a growing and valuable real estate business.
The stock is up 182% since my original recommendation but it still looks cheap.
Recently, BBX bought back ~8% of its shares outstanding via a tender offer at $8 per share.
Meanwhile, Angelo Gordon, a sophisticated PE investor, keeps buying more stock in the open market and now owns 9.6% of the company.
Despite the stock’s strong performance, it’s still only trading at 46% of book value.
If I had to bet, I think BBX will buy back a bunch more stock via another tender offer within 12 months.
Glaxo is a name that I profiled in this Twitter thread.
I own the GSK LEAPs.
Insiders have been buying and Elliott Management is agitating for change.
PROG Holdings (PRG)
PROG Holdings is a “poor man’s” After Pay. It basically offers installment plans for consumers to rent-to-own goods (computers, furniture, etc.). If the customer makes enough payments, he owns the good outright. While After Pay targets prime customers, PRG targets sub prime customers.
Why would you target sub prime customers?
Because it’s way more profitable, even after factoring in high defaults.
The other nice thing is the loans are paid back in weekly installments over 12 months so PRG can modify its underwriting in real time.
I own shares and insiders are starting to buy shares in the open market.
It has no debt and is generating a ton of cash. It’s trading 10x FCF despite 10% revenue growth and 18% EPS growth. Longer term, I think revenue will reaccelerate to 20%+.
The company has a share repurchase authorization for ~10% of its market cap.