Insiders Are Loving Green Dot This Month

Insider purchases are generally a good sign for a stock. Statistically, studies show that stocks bought by insiders beat the market and we think that this is because it usually makes sense for insiders to diversify their wealth away from the company that employs them; when they don’t, and actually buy more shares, it is likely because they are very confident that better times are ahead. So seeing that John Keatley, CFO of Green Dot Corporation (NYSE:GDOT), bought 9,000 shares of the company’s stock on November 20th at an average price of $10.90 is a good sign. In addition, our database of insider trades shows multiple insiders buying stock in the $420 million market cap prepaid card company in November 2012 (check out which insiders have been buying). Considering that those studies we’ve mentioned tend to show that consensus insider buying is a particularly bullish signal (read more about consensus insider buying), we decided that the company was well worth closer inspection.

Green Dot, which provides prepaid cards under brands including Mastercard Inc (NYSE:MA) and Visa Inc (NYSE:V), has had a rocky ride since going public in November 2010. The stock is down about 77% from the IPO price, and lost over 50% of its value in late July after it reported a decline in earnings. The company recently filed its 10-Q for the third quarter of the year, in which it continued to show lower net income. This occurred despite a 16% increase in revenue compared to the third quarter of 2011, as costs grew at an even faster rate. We’d note that Green Dot does have considerable cash on its balance sheet- about $240 million in cash, cash equivalents, and marketable securities classified as current assets. We’d also note that most of the company’s revenue stems from products sold at Wal-Mart Stores, Inc. (NYSE:WMT), giving it significant customer concentration in a sense.

Millennium Management, Catapult Capital Management

The market seems very bearish on Green Dot’s business, in contrast to the behavior of insiders. Debra Fine’s Fine Capital Partners was the only hedge fund or other investor in our database of 13F filings to report a position worth more than $5 million at the end of September. Israel Englander’s Millennium Management and billionaire Ken Griffin’s Citadel Investment Group had between $3 million and $4 million invested, though those positions paled in comparison to the size of these funds. With 20% of the shares outstanding held short, in fact, our guess is that the hedge fund community has more short than long positions in Green Dot Corporation. At its current price, it trades at only 9 times trailing earnings and its enterprise value is only 2.2x trailing EBITDA. The company insiders clearly consider the stock beaten down by the market, and to see consensus insider buying is interesting. Perhaps the business’s decline can be halted, which would make the stock a good value at these prices.

NetSpend Holdings Inc (NASDAQ:NTSP) is another company offering prepaid cards. At a market cap of about $780 million, it is close to twice the market value of Green Dot. It’s also widely shorted, with 13% of the float held short as of the most recent data. The market seems considerably more bullish on Netspend, however: the stock price has nearly doubled in the last year, and the fact that it trades at 50 times trailing earnings suggests that investors are considerably more confident in growth here. Wall Street analysts also expect better numbers in the future, and so the forward P/E is 18 and the five-year PEG ratio is 0.6. The sentiment towards these two companies is clearly different, and it might be worthwhile to look at them in more detail and see if this spread in valuation is justified by the specifics of their businesses.

We’re leery of getting into a stock which has so little representation in the hedge fund community and which is such a popular short, regardless of the insider purchases. Yet on average stocks bought by insiders tend to outperform the market and we can’t help but think that Green Dot Corporation would clearly be cheap if earnings were holding steady.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!