Insiders Are Dumping Flextronics International. Should You Be Scared?

On an up day for stock markets generally, shares of contract electronics manufacturer Flextronics International (NASDAQ:FLEX) stood pat Wednesday, opening the day at $11.31 a share — and closing the day there as well.

Helping to keep a lid on the stock price, one imagines, is the uninspiring insider trading activity that Flextronics reported last month. This activity ended with Wednesday’s filing of a Form 4 detailing CEO Michael McNamara’s sale of 91,324 shares for more than $1 million in proceeds, but it didn’t begin there.

In fact, according to filings with the SEC, insiders at Flextronics have been cashing out in droves — 42 insider sales transactions recorded over the past three months, versus just 18 buys, and with a net of 3.9 million more shares sold than bought by company insiders.

What does it mean to you?
That probably sounds worrisome to some investors. And in fact, it probably would be worrisome — if the other numbers we see at Flextronics weren’t so very, very attractive.

According to Yahoo! Finance data, Flextronics sells for a market cap of $6.4 billion today, but earned more than $600 million in profits over the past 12 months. As a result, the company’s price-to-earnings ratio is a very modest 11.1. In light of analyst estimates that Flextronics will grow those earnings at 14% annually over the next five years, that doesn’t seem expensive at all.

Granted, there are some risks to the company — revenues down 11.5% last quarter, and a sizeable debt load ($700 million more debt than cash on the balance sheet) to name two. Free cash flow at the firm  ($447 million) lags reported net income by a wide margin as well. But even so, the worst I can say about the stock right now is that if the growth rate is accurate, the firm’s enterprise value-to-free cash flow ratio looks a little bit high at 16.4.

Long story short, this stock looks to be anywhere from significantly undervalued in the best case, to just slightly overvalued in the worst.

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