Small and micro-cap tech companies can provide great returns for those bold enough to bet on them. However, choosing one to invest in is quite a difficult task. Insider purchases can help us decide, as they can be interpreted as a strong bullish sentiment from someone who has inside information on the company´s operations, and is betting on it instead of diversifying its stakes.
Over the past weeks, two IT service providers, Carbonite Inc (NASDAQ: CARB) and PFSweb, Inc. (NASDAQ:PFSW), have been experiencing some noteworthy insider activity. Let´s take a closer look in order to elucidate if they could help you find a value investment in any of these two stocks:
A Small-Cap Option
Carbonite Inc (NASDAQ:CARB) is a developer and provider of online accessible computer backup software with a market cap of approximately $323 million. Over the last couple of weeks, following the release of its 8-K report on Nov. 12th, its CEO and President, David Friend, and one of its Board Directors, Todd Krasnow, added stock to their portfolios.
Mr. Friend bought 58,871 shares on Nov. 12th: 11,249 for $2.64 each, using stock options he held; 44,063 for $9.62 per share; and 3,559 for $10.26 a piece. On top of this, he used some more of his stock options on Nov. 14th, and added 3,751 shares to his portfolio for $2.64 each. He now holds 969,762 shares, worth roughly $11.9 million.
Krasnow also acquired Carbonite Inc (NASDAQ:CARB) shares lately. On Nov 20th, he purchased 37,000 shares in multiple transactions at prices ranging from $11.04 to $11.50, inclusive. He now owns (counting directly and indirectly owned stock) 294,771 shares of the company.
A Micro-Cap Option
PFSweb, Inc. (NASDAQ: PFSW) provides integrated eCommerce and business process outsourcing solutions to developing countries. Its market cap barely surpasses $140 million. However, insiders do not seem to care about its size. After the company reported its third quarter 2013 results, on Nov. 15th, F James Reilly, Director of the Board, and Transcosmos Inc., large shareholder, added stock to their holdings.
Mr. Reilly bought 20,000 shares on the day that the 8-K form was filed at the SEC. He paid an average price of $7.54 per share; the stock is already trading at around $8.59. Following the reported transaction, the board director owns 40,512 shares of the company.
On the other hand, Transcosmos bought 3,578 shares on Nov. 15th, for an average price of $7.4785 each. The shareholder continued to increase its stake in the company, and added stock again on Nov 19th (400 shares), 20th (16,904) and 21st (7,274) on prices ranging from $7.50 to $8.00 per share. Transcosmos now owns 3,242,525 shares, valued at about $27.5 million.
Hedge Fund Bulls
In addition to insiders, hedge funds also seem to be quite into these IT companies. For instance, Jim Simons´ Renaissance Technologies is the largest “hedgie” bull on PFSweb, Inc. (NASDAQ:PFSW) -holding about $3 million worth of shares- and the fourth largest bull on Carbonite Inc (NASDAQ:CARB), with about $2 million in shares. Matthew Drapkin and Steven R. Becker´s Becker Drapkin Management is also placing big bets on PFSweb. Its holdings, worth about $2 million, account for almost 1.5% of its portfolio.
Back to Carbonite: amongst the hedge funds that we track, two are particularly bullish on this company. Seymour Sy Kaufman and Michael Stark´s Crosslink Capital owns about $26 million in shares, and Mark N. Diker´s Diker Management, another $15 million.
After reviewing these positions, one question emerges: if insiders and hedge funds are betting on these small-cap IT services firms, should you?