These six tech stocks are what insiders are buying now. That indicates they are very positive about the long-term prospects of the company. In addition, a number of these companies have recently instituted or upped their share buyback programs.
These are both strong indications that insiders, including the board — who would have made the buyback decision together with the chief executive officer (CEO) — think that the stock is severely undervalued. The theory here is very simple — who else would know better than a board member that the stock is too cheap?
There is a very good reason for this. As the moniker suggests, insiders have inside knowledge. They know the company’s margins, the latest inventory situation, the latest orders, sales trends, and the latest free cash flow (FCF) information. If they believe the company’s prospects are being woefully undervalued by the market, they can legally buy shares within certain parameters as insiders.
They can also have the company buy shares. This reduces the shares outstanding, increases the earnings and dividends per share, and generally pushes up the stock price. Therefore, these are very strong indications that help the public know a stock is too cheap.
Let’s dive in and look at these stocks:
|PRCH||Porch Group, Inc.||$3.56|
|KD||Kyndryl Holdings, Inc.||$10.18|
|KAR||KAR Auction Services, Inc.||$16.99|
Tech Stocks to Buy: Chegg (CHGG)
- Market Cap: $2.5 billion
Chegg (NYSE:CHGG) is an educational software direct-to-student learning platform that is forecast to show 9% revenue growth next year. That makes this one of the few recession-resistant tech companies. This is because everyone has to go to school.
Moreover, earnings per share (EPS) are forecast to rise by 14% to $1.22 in 2023 from $1.07 in 2022, which will be down from $1.29 in 2021. Therefore, at $20.55 on Jun. 8, CHGG stock trades for just 16.8x of 2023 forecast EPS.
Insiders, specifically the CEO, chief financial officer (CFO), and a director, were buying CHGG stock at the end of last year, based on information from Openinsider.com.
Moreover, the company announced on Jun. 2 that it is doubling its $1 billion buyback program to $2 billion. It had $65 million remaining from its prior $1 billion program, so in effect, it was re-upping the $1 billion program. In fact, in the first quarter (Q1), the company spent $300 million for its accelerated share repurchase, which was completed in April.
The company has plenty of FCF to fund its buybacks. The Q1, FCF was $50.5 million, which works out to 25% of its sales. That is a very high FCF margin and is the basis for the company’s confidence in re-upping its $1 billion buyback program.
Porch Group (PRCH)
- Market Cap: $350.44 million
Porch Group (NASDAQ:PRCH) is a vertical product real estate software company whose 2023 sales are forecast to rise 28.6% higher in 2023 to $411 million, according to 11 analysts. Additionally, 2022 sales are forecast to rise 66% from 2021.
As a result, PRCH stock now trades for below 1x sales (i.e., $378 million/$411 million = 0.92x).
The CEO and founder bought a large stake in this $350 million market cap company on May 12, according to Openinsider. In addition, Yahoo! Finance reports that multiple insiders have been buying shares in the last 12 months.
This is a pretty good sign that the stock looks to be too cheap and enterprising investors should consider this one of the best tech stocks to buy.
Tech Stocks to Buy: RH (RH)
- Market Cap: $7.12 billion
RH Inc. (NYSE:RH), formerly known as Restoration Hardware, just announced a $2 billion increase in its buyback program. That represents a huge 27% of its market capitalization.
On Jun. 2, the same day it reported its fiscal quarterly earnings for the quarter ending April 30, RH said it would increase its share repurchase authorization by $2 billion. As it had $450 million remaining on the share repurchase program, the new buyback program is now $2.45 billion.
Last quarter, the company did not buy back any shares, but it produced $106.6 million in free cash flow. That works out to 11.1% of its $957 million in revenue for the quarter. If analysts’ forecast for 2022 sales of $3.84 billion come to pass, its FCF would be $422 million. And for 2023, with $4.07 billion in sales, FCF could reach $448 million. That shows that the company will have plenty of FCF to cover almost 18% of its $2.45 billion buyback program going forward.
I highly suspect that the company believes that its FCF margins will be higher than 11%. This could raise its FCF and the pace of its buybacks. One way that would happen is if the company does not experience as rough a recessionary slowdown as other companies.
In any case, it will be very helpful to shareholders to know that the company is buying shares, helping push up demand for the stock.
- Market Cap: $61.7 million
AudioEye (NASDAQ:AEYE) is an Arizona-based audio aid software company that started a $3 million buyback program on Jun. 2, to be funded through its cash flow and working capital. It said that the buyback authority would be good for two years ending Jun. 30, 2024.
This is a very strong indication that the company’s FCF will be very strong going forward. As a result, since the buyback announcement, the stock has risen 63% from $3.21 per share to $5.24 on Jun. 8.
So far, analysts still expect the company will have negative earnings this year and next. However, sales are forecast to rise 23% this year, according to the average of 2 analysts, and 16.6% next year. This implies that its cash flow is likely to turn positive sometime in the next year.
In addition, insiders have also been buying the beaten-down stock. Their latest purchases were at the end of Nov. 2021, according to Openinsider.com.
So, this is a smoking combination. Insiders have been buying the stock since the end of last year. Now that it’s down over 27% from the end of the year, they are using company cash and cash flow — which is likely to turn positive — to repurchase shares. That increases the insiders’ stakes in the company and implies that AEYE stock could move substantially higher. It also makes AEYE stock one of the best tech stocks to buy now.
Tech Stocks to Buy: Kyndryl Holdings (KD)
- Market Cap: $2.29 billion
Kyndryl Holdings (NYSE:KD) is an IT cloud services company whose earnings are forecast to turn positive for the year ending March 2024 at $1.43 per share. So, at $10.75 on Jun. 8, the stock is trading on a cheap forward price-to-earnings multiple of just 7.5x.
So, no wonder the CEO, the president, and the CFO all decided to increase their stakes in the company by significant amounts in May, according to Openinsider. For example, the CEO raised his stake by 11% and the two others increased theirs by 7% each.
Moreover, Kyndryl started repurchasing its own shares in its latest quarter, albeit oat a modest level. Given how cheap the stock is based on analysts’ forecast for the next year, I suspect the company may increase its buybacks.
As a result, this is a simple story. Buy KD stock since management really seems to believe in its turnaround. This makes it one of the best tech stocks to buy today.
Kar Auction Services (KAR)
- Market Cap: $2.06 billion
Kar Auction Services (NYSE:KAR) is a secondary car auction market company whose earnings are expected to more than double from 40 cents in 2022 to 84 cents in 2024. At $17.28 as of Jun. 8, the stock trades for just 20x forward 2023 earnings. Given its growth rate, that makes KAR stock fairly cheap.
Everyone knows that the prices of used cars have been rising very sharply. As a result, this company’s revenues are forecast to rise 12.5% in 2023, according to Yahoo! Finance.
Probably as a result of this valuation outlook, the CEO of this company increased his stake by 20% in mid-May. That is according to Opensider.com.
Moreover, on top of this, Kar Auction Services has been aggressively buying back stock. The company bought back $102.6 million in the last 12 m0nths, according to Seeking Alpha, or almost 5% of its nearly-$2.1 billion market cap.
These are two very good reasons that investors should consider buying KAR stock.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines