(By Rich Bieglmeier) This week's insider buying check with littered with stocks under a buck or stocks with little daily volume. We only found one familiar name, Denbury Resources Inc. (DNR). Thankfully, the independent oil & gas company experienced a cluster of buying from six executive management members.
The half dozen DNR insiders picked up a total of 6,755 shares at $16.12 for a total investment of $108,887. While the grand sum is small, iStock likes to see multiple insiders who decide to buy at the same time – confirmation is cool.
We are always interested in reviewing prior open market trades for insiders. Do they have a good sense of timing? Are the trades they make profitable? Does their track record warrant our attention?
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Interestingly, only two of the six insiders have previous open market trades in the past two years. Chief Exec. Officer, President and Director, Phil Rykhoek Sr., and Chief Financial Officer, Sr. VP, Treasurer and Assistant Secretary, Mark C. Allen CPA, both sold stock in March 2011 at $23.85 and $24.45, respectively.
Good timing appears to be a quality he two men shares as six months later, DNR was trading at less than $11. However, most of the losses came after the debt-ceiling created selloff that summer. Nonetheless, shares traded more than 20% prior to the debt debacle.
In our view, Rykhoek and Allen open market history suggests investors monitor their DNR trades; although, the relatively small buys relative to their income, $1.42 million and $960,000 respectively, gives iStock some pause. A much larger dollar commitment would make us more comfortable as $27k for the CEO and $18k for the CFO is a little less than a week's pay for both officers.
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Minus the wreck that was 2008/early 2009 and 2011's government caused wound, $12.50 has provided DNR shares major support going back to the start of 2006. Our interpretation of the chart shows short-term upside of $20; fairly close to Stern Agee's price target of $22 and JPMorgan's includes Denbury Resources as one of its Top Five Energy Picks for 2013. We wonder if analysts ever look at charts? If the oil & gas company's shares top $20, then $25 is almost as likely as $22, in our view anyway.
Valuation wise, the six insiders probably see their company as a value play. Shares currently trade for 1.25 times their book value, 35.6% lower than the five-year average of 1.94 time book. A discount is also available based on DNR's five-year average price-to-sales (P/S) ratio. Today's P/S of 2.64 is 30.4% lower than the average of 3.65.
Relative to its peers, DNR has higher gross and operating margins while trading at a discount on a trailing 12 month P/E and P/S basis; however, analysts expect earnings to fall by 22% and revenue by 11% in 2013 as rising inventory and slack demand could hurt oil prices and help drivers in the year ahead.
Overall, investors might be well served waiting for a pullback and a better entry price in our view. The stock has 33% upside to Stern Agee's $22 price target, and 24% downside to our bottom fishing support level at $12.50. iStock prefers a 2:1 reward to risk ratio, which is found at $15.66 using a topside target of $22 and a stop at $12.50.