A Board Member Bought About $50,000 Worth of IHS

According to a Form 4 filed with the SEC, Jean-Paul Montupet, a Board member at IHS Inc. (NYSE:IHS) purchased 500 shares of the stock on January 22^nd through a trust at an average price of $99.26. Montupet also owns a little over 3,400 shares of IHS directly. IHS is an information, analysis, and consulting company with a market capitalization of $6.8 billion. Studies show that stocks bought by insiders tend to outperform the market (read more about studies on insider trading) and we think that this is because insiders face such strong incentives to avoid buying the stock that it is a bullish signal to see them going against these incentives. IHS had been the target of multiple insider purchases in late September and early October 2012, at prices of about $90 per share. See our records of these insider purchases.

IHS’s fiscal year ended in November, with the company reporting a 15% increase in revenue from the previous fiscal year (the previous year’s growth rate on the top line had been 25%). Sales were up 12% in the fourth quarter of the fiscal year versus a year earlier, so we’d conclude that while the business is growing its growth rates are slowing down. Earnings have also been up- they increased 17% in the last fiscal year, helped by very strong margins in the fourth quarter.

The market is very optimistic about the company, with the stock trading at 44 times trailing earnings. Certainly IHS Inc. has been growing nicely, but it did appear to us that its growth rates were slowing and a P/E of 44 suggests very high growth expectations. Wall Street analysts are forecasting high growth for the next couple years; the forward price-to-earnings multiple, based on the fiscal year ending in November 2014, is 20. We would avoid the stock given the trendline in revenue growth- it’s not as likely that the company will hit its targets as would be desirable.

Conatus Capital Management, managed by David Stemerman, increased its stake in IHS Inc. by 16% during the third quarter of 2012 to a total of about 520,000 shares. Stemerman had previously worked at billionaire and Tiger Cub Stephen Mandel’s Lone Pine Capital (see more of Stemerman’s stock picks). Robert Caruso’s Select Equity Group reported a position of 1.2 million shares at the end of September (find Caruso’s favorite stocks). Caxton Associates, founded by billionaire Bruce Kovner, sold its stake in the company during the third quarter (here are more stocks Caxton was trading).

We also looked at some similar companies, which are trading at a discount to IHS: