Following insider buying at smaller companies can be a very profitable trading strategy. Smaller companies are less researched than larger companies, meaning that they offer greater potential for outperformance.
In this report, we are going to highlight some interesting insider buying at a small US company, Party City Holdco Inc (PRTY:US). Party City is a party goods retailer that has operations in North America, Europe, Asia, and Australia. A serial acquirer, it is the world’s largest vertically-integrated supplier of decorated party goods in the world. The company is listed on the New York Stock Exchange and currently has a market capitalization of $718 million.
Party City: Insider Buying
Our records show that this month, hedge fund CAS Investment Partners – a 10% owner in Party City – has bought PRTY stock on two occasions.
On January 3, the firm picked up 434,531 shares at a price of $6.01 per share, spending $2.6 million on stock. Then, on January 4, the firm added another 551,377 shares at a price of $6.20 per share, spending $3.4 million on stock.
These purchases come after the firm spent $2.5 million on stock in early December.
In total, CAS Investment Partners has spent approximately $8.5 million stock since the start of December and in the process, increased its holding in Party City from around 16.0 million shares to 17.4 million shares.
This insider activity is worth highlighting for a couple of reasons.
Firstly, records show that CAS Investment Partners is currently the largest shareholder at Party City with a stake of around 15.5% of the company. Given its significant position here, it’s fair to assume that the investment firm has done its research and knows the company intimately.
Secondly, CAS has made well-timed trades here in the recent past. Back in late 2020, we highlighted the fact that the hedge fund had spent over $6 million on PRTY stock when it was trading near $4. Since then, the stock has traded as high as $11.
Share Price Fall
Party City shares fell significantly in the last few months of 2021. The company’s Q3 results, which missed expectations on the top line, were one driver of the share price fall. Concerns over the Omicron variant of the coronavirus were another.
However, recently, the stock has begun to rebound as fears over Omicron have faded and the purchases from CAS Investment Partners suggest that the firm believes the upwards momentum will continue.
It’s worth noting here that Party City management was relatively confident going into the holiday season. “As we look to the final quarter of the year, we feel good about our positioning for the holiday season,” said CEO Brad Weston in November. For Q4, the company advised that it was expecting low-teens growth on the fourth quarter of 2019.
It’s also worth noting that after the recent share price fall, the stock trades on a very low forward-looking price-to-earnings (P/E) ratio of 7.1.
Given the rock-bottom valuation here, we see the insider buying as a bullish indicator. It suggests that the hedge fund believes the stock will rise from here.