Two heads are better than one – that’s what they say. We’ll adlib a bit to fit our needs and say two insider buys are better than one, especially when both buyers do something way out of their ordinary patterns.
We don’t know for sure and can only speculate, but it sure looks like a pair of Zumiez Inc. (ZUMZ) might believe Wall Street overreacted to recent earnings. Zumiez operates as a specialty retailer of apparel, footwear, accessories, and hard goods for young men and women. The company also offers hard goods, including skateboards, snowboards, bindings, components, and other equipment. It operates stores in the United States, Canada, Europe, and Australia under the names of Zumiez, Blue Tomato, and Fast Times.
A pair of the specialty retailer’s insiders bought ZUMZ stock last week. President International Adam Ellis acquired 10,000 shares at $14.67 for $146,700 (easy math there). Chief Executive Officer (CEO) Richard Brooks invested more than $1 million, purchasing 74,390 shares at $15.57. (1)
Here’s why it appears the duo might feel the reaction to recent results was overblown. It was the maiden buy from both. Prior to last week, Ellis sold 10 times from September 2019 through April 2021, collecting nearly $1.65 million along the way. (2) Meanwhile, CEO Brooks unloaded Zumiez stock 20 consecutive times, from May 2005 all the way to January 2020. Fourteen and a half years, never buying once as he pocketed more than $62.3 million in proceeds. (3)
Suddenly, both decide to buy on the same day seemingly out of nowhere and absolutely out of their exclusive trading pattern of selling. Maybe this comment from CEO Brooks on the conference call is a tell, as they call it in poker.
“We’re not pleased with our recent results. That said, we aren’t discouraged either. Our team has navigated economic down cycles before, and while each cycle has some unique characteristics, the one constant is that they eventually turned positive. And Zumiez has historically outperformed the market on the way up.” (4)
While the new owners of Zumiez might see some value at current levels, Wall Street has a decidedly different idea with a one-year price target of $15.50. ZUMZ trades at $14.70 as of this writing. (4) However, analysts do see a potential rebound in earnings per share (EPS) in 2024. The consensus estimate for this year is a loss of 59 cents and bouncing to a profit of 64 cents next year. Sales are also projected to move forward a little fiscal 2025 (next year) to $910.6 million from this year’s forecast of $837.55 million. (6)
On the value front, the retailer trades for 31 cents for every dollar per share in revenue (P/S) and below its book value of $20.90 per share or 0.70 times book value (P/B). Both valuations are at five-year lows versus the five-year average P/S ratio of 0.71 and 1.66 times book.
OVERALL: Zumiez Inc. (ZUMZ) appears to have some appeal based on its current P/S and P/B valuations. However, it could take a while for investors to regain confidence in the retailer despite insiders Ellis and Brooks’ quick reactions to the recent price slide.
ZUMZ is only appropriate for investors with above-average risk tolerance and a time horizon of at least 18-24 months.
1 – https://www.secform4.com/insider-trading/1318008.htm
2 – https://www.secform4.com/insider-trading/1700575.htm
3 – https://www.secform4.com/insider-trading/1323608.htm
4 – https://www.fool.com/earnings/call-transcripts/2023/06/01/zumiez-zumz-q1-2023-earnings-call-transcript/
5 – https://finance.yahoo.com/quote/ZUMZ?p=ZUMZ
6 – https://finance.yahoo.com/quote/ZUMZ/analysis?p=ZUMZ
7 – https://finance.yahoo.com/quote/ZUMZ/key-statistics?p=ZUMZ