Insiders Are Buying Shares of Diebold

Hedge funds and other investors we track in our database of 13F filings are not very excited about the stock. Billionaire Mario Gabelli’s GAMCO Investors owned 3.5 million shares of Diebold at the end of December (see Gabelli’s stock picks). The only other filer we track with a position worth over $15 million was Royce & Associates, managed by Chuck Royce (find Royce’s favorite stocks). Because small-cap stocks such as Diebold often receive less attention from investors and the media they can be particularly likely to be mispriced, and so we are particularly sure to track hedge fund activity (the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year).

We think the two closest peers for Diebold are NCR Corporation (NYSE:NCR) and VeriFone Systems Inc (NYSE:PAY). These two companies have also been struggling on the bottom line in recent quarters (though Verifone has been recording decent revenue growth rates) and as a result their trailing earnings multiples are above 30. As with Diebold, the sell-side is quite optimistic and in fact these two companies are priced at a discount in terms of expectations for the next fiscal year with forward earnings multiples of 9 at each. Consequently their five-year PEG ratios are well below 1.

Diebold may be worth considering from an income perspective, solely because of its yield. In terms of value we aren’t sure how much weight to place on this most recent quarter looking so poor, while in the rest of the year performance seems to have been decent. We do find it appealing that analysts are very bullish on earnings for Diebold and its peers, however, and so even with the multiple insider purchases it might be wise to revisit these three companies after they have next reported quarterly results.

Disclosure: I own no shares of any stocks mentioned in this article.