New Mountain Finance Corp. (NYSE: NMFC) insiders have bought $7.1 million worth of stock since March. It's worth taking a closer look at the company with the stock trading at such a low valuation.
Insider Buying: New Mountain Finance Corp.
A number of insiders have been buying shares of New Mountain Finance according to recent form 4 filings with the SEC. Notable insiders include Steven Klinsky (Founder), John Kline (President and COO), Adam Weinstein (Chief Administrative Officer) and Kurt Wolfgruber (Director), as shown in the table below. Insiders have purchased a total of 531,831 shares worth $7.1 million since March 5th. This is approximately 0.7% of New Mountain Finance's total market capitalization.
|Insider Trading||Relationship||Date||#Shares||Value ($)|
|Steven Klinsky||Founder and Director||Mar 13||99,163||$1,331,620|
|James Stone||Section 16 Officer||Mar 13||3,300||$44,644|
|Steven Klinsky||Founder and Director||Mar 12||182,013||$2,436,153|
|Steven Klinsky||Founder and Director||Mar 09||95,615||$1,281,939|
|Steven Klinsky||Founder and Director||Mar 08||105,485||$1,404,860|
|Adam Weinstein||EVP, CAO and Director||Mar 05||16,255||$213,632|
|Kurt Wolfgruber||Director||Mar 05||10,000||$131,900|
|John Kline||President and COO||Mar 05||20,000||$262,774|
Steven Klinsky (Founder and Director) most recently bought $1.3 million worth of shares on Tuesday, March 13. This is what propelled me to take a closer look at the company's insider activity.
Potential Reasons For Insider Activity
New Mountain Finance Corporation is a business development company specializing in investments in middle market companies and debt securities at various levels of the capital structure.
Analysts covering the stock often compare the company to a peer group that includes Triangle Capital (NYSE: TCAP), Hercules Capital (NYSE: HTGC), Main Street Capital (NYSE: MAIN) and Apollo Investment (Nasdaq: AINV). Analyzing New Mountain Finance's valuation metrics and ratios relative to its peer group offers insight into why insiders may be buying shares.
Return on Equity (ROE) measures a company's profitability in relation to the book value of Shareholders' Equity. ROE is a measure of how effectively management makes investments to generate earnings for shareholders.
The company's ROE of 11.1% is above TCAP (-4.6%), HTGC (9.6%), AINV (5.1%) and only below MAIN (13.2%).
Net Profit Margin is defined as
Net Income / Total Revenue. The company's net profit margin of 53.4% is well above the majority of its peers as illustrated below.
All else equal, companies with higher profit margins command higher valuation multiples. However, this doesn't appear to be the case with New Mountain. The company's LTM P/E multiple of 9.3x is below HTGC (13.3x), MAIN (12.7x) and AINV (15.9x) as shown in the chart below.
New Mountain's forward P/E multiple of 9.4x also trades below the majority of its peers.
The company's shares last traded at $13.23 as of Wednesday which is where it traded at in March of last year. While the stock has stagnated, the recent insider transactions could signal a promising road ahead for shareholders.
In addition, finbox.io's average fair value estimate of $16.28 implies 23.1% upside and is calculated from 2 valuation models as shown in the table below.
|Analysis||Model Fair Value||Upside (Downside)|
|Peer P/E Multiples||$17.96||35.8%|
|Dividend Discount Model (multi-stage)||$14.61||10.5%|
How Should You Interpret This?
While executives are always happy to tell you all the reasons why their stock is a buy, their actions can tell a different story about the company’s future prospects. A trend of buying activity may indicate that insiders think the stock is going up over the upcoming time period, and are trying to buy before the price rises.
Keep in mind that insider activity is only one aspect of stock research and that there are other important items to consider. I recommend you continue to research New Mountain Finance Corp to get a more comprehensive view of the company's fundamentals by looking at:
Valuation Metrics: how much upside do shares of New Mountain have based on Wall Street's consensus price target? Take a look at our analyst upside data explorer that compares the company's upside relative to its peers.
Forecast Metrics: what is New Mountain's projected earnings growth? Is the company expected to grow faster or slower relative to its peers? Analyze the company's projected earnings growth here.
Efficiency Metrics: is management becoming more or less efficient in creating value for the firm? Find out by analyzing the company's return on invested capital ratio here.
Author: Andy Pai
Expertise: financial modeling, mergers & acquisitions
Andy is also a founder at finbox.io, where he's focused on building tools that make it faster and easier for investors to do investment research. Andy's background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights:
- Sears Holdings Corp.'s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores.
- Cerberus Capital Management's $3.3 bn acquisition of SUPERVALU Inc.'s New Albertsons, Inc. assets.
Andy can be reached at [email protected].
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.