Legendary investor Peter Lynch has a direct insider view of companies and their stocks in the stock market. He put it simply: insiders can sell stocks for a variety of reasons, but they only buy stocks when they think the price will go up.
Keeping a close eye on insider stock purchases can prove to be a profitable investment strategy. Company insiders, who include company executives and board members, have valuable knowledge about company policies and performance that can influence stock prices. They can use this information to make informed decisions when buying stock, but they are required by law to publicly disclose their own stock holdings. This transparency allows the general public to have an overview of these purchases.
With that in mind, we used TipRanks’ Insiders’ Hot Stocks tool to show us the direction of two stocks showing signs of significant insider buying, warranting further investigation. Additionally, these stocks are getting a strong endorsement from analysts at banking giant Morgan Stanley and offer up to 140% upside potential. Let’s take a closer look.
Matching group (MTCH)
The first stock we look at is Match Group, the parent and holding company of some of the most active dating sites in the online world. Match Group owns Tinder, OKCupid and match.com – along with nine other popular and niche online dating sites. The company has been in the business for over twenty years and boasts that 65% of all LGBT+ couples can trace their relationships on a Match Group site.
This is not too surprising since Match Group specializes in niche dating sites. The company has built its overall success and longevity on the scale of its operations and the breadth of its reach. The company’s applications have totaled more than 750 million downloads and products are available in 40 languages. With 40% of all new relationships in the US starting online, Match is firmly positioned for a strong future.
So far, the company is reporting mixed results. In the last reported quarter, 1Q23, Match recorded total revenue of $787.12 million. That number was down 1.5% year-over-year and missed analysts’ forecasts by just under $7 million. The company collects money globally and therefore also reports its earnings on a currency-neutral basis, FXN; by this metric, revenue was $822 and grew 3% year over year.
In the end, Match posted a profit of 42 cents per diluted share. This EPS number was down from 60 cents in the prior year quarter, but exceeded current quarter estimates by 2 cents.
Turning to insiders, we find the company’s CEO, Bernard Kim, showing his confidence in MTCH with a purchase of 31,439 shares. It cost him over $1.08 million when purchased on the unopened market; Kim now owns a stake in the company worth $2.5 million.
Kim may have been optimistic, but he’s not Match Group’s only bull. Morgan Stanley analyst Lauren Schenk also gave a bullish outlook on MTCH shares, writing, “Given the encouraging update from April (re-acceleration in Tinder revenue, improved downloads, improved growth of new users), we continue to be confident in our off-consensus call that Tinder can re-accelerate revenue growth into double digits or better by the end of the year. There is a lot of trail, and therefore uncertainty, until then, but for now our thesis remains largely on track and at 11xFY23 EBITDA our updated sum of coin analysis implies that the market pays around 12x for Tinder which we believe is a compelling entry point for a 45-50% margin business, even if Tinder only generates 10-12% revenue growth going forward.
Schenk goes on to give MTCH stock an overweight (i.e. buy) rating, with a price target of $95 to suggest a robust 140% upside over the next 12 months. (To see Schenk’s track record, click here)
Overall, MTCH earns a Moderate Buy rating from Street’s analyst consensus, based on 21 recent analyst reviews that include 15 buys vs. 6 holds. The stock is selling for $39.72 and the average price target of $53.42 implies a one-year gain of about 34%. (See MTCH Stock Forecast)
Align Technology (ALGN)
We started with a stalwart of the online dating field – but it’s always easier to find a date when you have a big smile, and the next stock, Align Tech, can help. Align works with both high technology and orthodontics; the company’s main product is a clear orthodontic aligner used to straighten teeth. The company uses a range of high-end 3D scanners to manufacture its exclusive Invisalign product.
Align got its start in the 1990s and Invisalign was first approved in 1998. The company has grown into a $23 billion giant over the past 25 years and employs more than 24,000 people worldwide. Align had total sales of $3.8 billion last year and has had some 15.1 million Invisalign patients since the product hit the market.
The current year has started with results above and below those expected by analysts. 1Q23 revenue of $943.1 million beat expectations of $39.9 million, while non-GAAP diluted EPS of $2.25 beat consensus by 13 cents. However, the company’s 1Q23 case volume of 575.4K was down 1% from 4Q22.
On a positive note, revenue from Align Clear Aligner, its primary revenue driver, was up 8% quarter over quarter, despite the 1% decline in case volume. The company believes that growing customer confidence and the easing of post-COVID restrictions in China will bring stability to the target market. Align is targeting 2Q23 revenue of between $980 million and $1 billion.
Notably, Kevin Dallas, a member of the company’s board of directors, made a large insider buy last week. Dallas demonstrated its confidence in the company by investing nearly $2 million to acquire 7,000 shares. As a result, his total ALGN holdings now stand at approximately $3.7 million.
Morgan Stanley 5-star analyst Erin Wright also takes a bullish stance on Align. She writes of the company: “Our longer-term thesis for ALGN remains, where its leadership positioning in an attractive and highly underpenetrated market, along with the growing adoption of digital workflows should support the growth of profits +DD LT. Overall, with its shares now trading at 35.8x our 2024e EPS, on par with its closest competitor Straumann, we don’t believe its current valuation fully reflects its longer-term growth prospects.
Wright’s comments confirm his overweight (i.e. buy) rating on the stock, and his price target of $383 implies a solid 26% upside on the one-year horizon. (To see Wright’s track record, click here)
Once again, we are looking at a stock with a Moderate Buy consensus rating from the street. Align’s 7 recent analyst reviews break down into 5 buys and 1 hold and sell each; the mid-price target of $349.33 and the trading price of $304.68 suggest upside potential of around 15% year over year. (See ALGN Inventory Forecast)
To find great stock ideas trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock information.
Disclaimer: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.