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Electronics For Imaging, Inc. (EFII): Should You Sell This Stock After Recent Insider Sales?

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Electronics For Imaging, Inc. (NASDAQ:EFII)Recently, Vincent Pilette, the Chief Financial Officer of Electronics For Imaging, Inc. (NASDAQ:EFII) (EFI), sold as many as 40,000 shares of the company at an average price of $26.20 per share, with a total transaction value of more than $1 million. In the past twelve months, shareholders of the company must have been quite happy because of a consistent rise in its stock price, from more than $14.30 per share to nearly $27 per share.

Thus, EFI’s CFO sold his shares near its 52-week high. Should investors turn bearish on the recent insider sales? Let’s find out.

Business snapshot

Electronics For Imaging, Inc. (NASDAQ:EFII) is a leading customer-centric digital printing innovation company, providing industrial super-wide and wide format, label and packaging, print production workflow, cross-media marketing, and web-to-print to its customers. EFI operates in three main business segments: Industrial Inkjet, Productivity Software, and Fiery.

The majority of its revenue, $320.2 million, or 49.1% of total 2012 revenue, was generated from the Industrial Inkjet segment. The Fiery segment ranked second with $228.4 million in revenue while Productivity Software contributed more than $103 million in sales in 2012.

Great growth in the past three years but expensive valuation

Since 2010, Electronics For Imaging, Inc. (NASDAQ:EFII) has experienced great growth in both its top and bottom lines. Revenue increased from $504 million to $652 million while net income rose from $7 million to $83 million during the same period. In 2012, Electronics For Imaging, Inc. (NASDAQ:EFII) generated $53 million in operating cash flow and $47 million in free cash flow.

What I like about EFI is its strong balance sheet. As of December 2012, it had $651 million in total stockholders’ equity, $365 million in cash and short-term investments, and no debt at all. However, as the company has been growing partially via acquisitions, it recorded goodwill of nearly $220 million.

Interestingly, over the past five years, Electronics For Imaging, Inc. (NASDAQ:EFII) has spent around $186 million to buy back its shares. At $27 per share, EFI is worth more than $1.3 billion. The market doesn’t seem to value EFI cheaply at 12.64 times EV/EBITDA.

Ricoh tries to improve customers’ experience

Compared to its bigger peers Ricoh and Xerox Corporation (NYSE:XRX), Electronics For Imaging, Inc. (NASDAQ:EFII) is quite expensively valued. Ricoh is a Japanese company providing office automation equipment in more than 200 countries around the world. The company operates in three main business segments: Imaging and Solutions, Industrial Products, and Other.

At the beginning of 2013, the company announced that it has merged its two divisions and their product portfolios, including business-to-business camera and lens product lines to improve customers’ experience. The Vice President of Visual Communications Group of Ricoh Americas Corporation commented on the move: “Businesses and government organizations that invest in our products deserve a completely satisfying sales, service and support experience. This integration ensures they have that experience while enabling us to more efficiently focus our R&D effort on the innovations that are most important to our customers.”

Ricoh is trading at around $56 per share, with a total market cap of more than $8.1 billion. The market values Ricoh quite cheaply at only around 7 times EV/EBITDA. However, Ricoh has sluggish profitability, with only 5.5% in operating margin and 3.5% return on equity.

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