Legendary investor Peter Lynch has an uncomplicated perspective on company insiders and their actions in the stock market. He put it simply: insiders can sell shares for various reasons, but they only buy shares if they think the price is going to rise.
Keeping a close eye on insiders’ stock purchases can prove to be a profitable investment strategy. Company insiders, including company officers and board members, have valuable knowledge about company policies and performance that can affect stock prices. They can use this information to make informed decisions when purchasing stock, but they are required by law to disclose their own stock holdings. This transparency allows the general public to understand these purchases.
With this in mind, we used TipRanks’ Insiders’ Hot Stocks tool to point us towards two stocks with flashy signs of strong insider buying that warrant a closer look. In addition, these stocks receive strong approval from banking giant Morgan Stanley analysts and offer up to 140% upside potential. Let’s take a closer look at that.
match group (MTCH)
The first stock we look at is Match Group, the parent company and holding company of some of the most active dating sites in the online world. Match Group owns Tinder, OKCupid and match.com – as well as nine other popular and niche online matching sites. The company has been operating for more than twenty years and can boast that 65% of all LGBT+ couples can trace their relationships to a Match Group site.
That’s not surprising since Match Group specializes in niche dating sites. The company has built its overall success and longevity on the scale of its operations and the scope of its reach. The company’s apps have been downloaded more than 750 million times and its products are available in 40 languages. With 40% of all new relationships in the US starting online, Match is firmly positioned for a strong future.
For now, the company is reporting mixed results. In its last reported quarter, 1Q23, Match reported total revenue of $787.12 million. This was a 1.5% year-over-year decline and missed analysts’ forecast by just under $7 million. The company raises funds globally and thus also reports earnings on a currency-neutral, FXN basis; according to this statistic, the top line was $822, and up 3% year-over-year.
In the end, Match saw 42 cents in earnings per diluted share. This EPS number was down from 60 cents in the quarter last year, but beat current quarter estimates by 2 cents.
Turning to the insiders, the company’s CEO, Bernard Kim, shows his confidence in MTCH with a purchase of 31,439 shares. This cost him more than $1.08 million in a non-open market purchase; Kim now owns a $2.5 million stake in the company.
Kim may have been bullish, but he’s not the only bull in Match Group. Morgan Stanley analyst Lauren Schenk has also taken an optimistic view of MTCH stock, writing: “Given the encouraging April update (Tinder revenues up again, downloads improving, new user growth improving), we remain convinced of our disagreement that Tinder may again accelerate revenue growth to double digits or better by the end of the year. There’s a lot of runway, and therefore uncertainty, between now and then, but for now our thesis remains largely on track and with 11x FY23 EBITDA, our revamped parts analysis sum implies that the market is paying ~12x for Tinder, which we think is a compelling entry point for a company with a 45-50% margin, even if Tinder only achieves 10-12% revenue growth in the future.
Schenk then gives the MTCH stock an Overweight (ie Buy) rating, with a price target of $95, indicating a sharp 140% upside over the next 12 months. (Click here to view Schenk’s track record)
Overall, MTCH receives a Moderate Buy rating from Street’s analyst consensus, based on 21 recent analyst ratings, including 15 Buy vs 6 Hold. The shares are selling for $39.72 and the average price target of $53.42 implies an annual gain of ~34%. (To see MTCH stock forecast)
Align technique (ALGN)
We started out with an avid of the world of online dating — but it’s always easier to find a date when you have a great smile, and the next stock, Align Tech, can help with that. Align works with both high tech and orthodontics; the company’s main product is a clear orthodontic aligner used to straighten teeth. The company uses a range of high-performance 3D scanners to manufacture its own Invisalign product.
Align started in the 1990s and Invisalign was first approved for use in 1998. The company has grown into a $23 billion giant over the past 25 years and employs more than 24,000 people worldwide. Align saw total sales of $3.8 billion last year and has approximately 15.1 million Invisalign patients since the product first came to market.
The current year started with both the top and bottom line better than analysts expected. 1Q23 revenue of $943.1 million beat expectations by $39.9 million, while non-GAAP diluted earnings per share of $2.25 beat consensus by 13 cents. However, the company’s 1Q23 case count of 575.4K was down 1% compared to 4Q22.
On the upside, Align’s Clear Aligner sales, the key revenue driver, grew 8% quarter-over-quarter, despite the 1% drop in sales volume. The company believes that increasing customer confidence and easing of restrictions in post-COVID China will bring stability to the target market. Align leads to second quarter 2023 revenue of between $980 million and $1 billion.
Notably, Kevin Dallas, a member of the company’s board of directors, made a major insider purchase last week. Dallas showed its confidence in the company by investing nearly $2 million to acquire 7,000 shares of stock. As a result, his total holdings of ALGN now stand at approximately $3.7 million.
Morgan Stanley’s 5-star analyst Erin Wright also takes an optimistic view on Align. She writes of the company: “Our longer-term thesis for ALGN remains, where its leadership position in an attractive, highly under-penetrated market, along with increasing adoption of digital workflows should support +DD earnings growth LT. All things considered, with its stock now trading at 35.8x our 2024 EPS, on a par with its closest competitor Straumann, we do not believe the current valuation fully reflects its longer-term growth prospects.”
Wright’s comments support her “Overweight” (ie buy) rating for the stock, and her $383 price target implies a solid 26% upside over the one-year horizon. (To view Wright’s track record,
Again, we’re looking at a stock with a moderate buy consensus rating from the Street. Align’s 7 recent analyst ratings are broken down into 5 Buys and 1 Hold and Sell each; the $349.33 average price target and $304.68 trading price suggest ~15% one-year upside potential. (To see ALGN stock forecast)
To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock insights.
disclaimer: The opinions expressed in this article are solely those of the named analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.