A number of studies on insider buying have found that the most profitable transactions occur in small-cap firms. In this area of the market, stocks are less researched. This means there’s more potential for explosive moves to the upside.
In this report, we are going to highlight some interesting insider buying in a US small-cap stock, World Acceptance Corp (WRLD:US). World Acceptance is a financial services company that offers consumers loans. It currently operates in 16 states across the US and has over 1,200 branches. The company is listed on the NASDAQ Global Select Market and has a market capitalization of $851 million.
World Acceptance Corp: Insider Buying
Our records show that this month, New York-based hedge fund CAS Investment Partners has purchased WRLD stock on three occasions. In total, the hedge fund has purchased 48,000 shares, spending $5.3 million on stock. These purchases have increased the size of CAS Investment Partners’ position by 7%.
This transaction is significant for a couple of reasons. Firstly, CAS – a value-focused investment manager – is World Acceptance’s second largest shareholder. Currently, the hedge fund owns just over 10% of the company’s stock. This means that CAS is likely to have done its research on the company.
Secondly, the buying activity is substantial. Our data shows that these purchases represent the largest amount of insider buying at World Acceptance Corp in several years.
Third, CAS has made some excellent trades recently. In December, we noted that the hedge fund had increased its stake in Party City Holdco. Since then, the stock has risen over 40%.
World Acceptance Corp’s most recent results, posted in October, showed that the company continues to be impacted by Covid-19. For the quarter, total revenues were $124.4 million, a 12.1% decrease on the same quarter in the previous year. Meanwhile, loans outstanding were $1.11 billion, a 12.9% decrease on the same quarter prior year.
However, there were some positives in the recent results. For the period, net income was up $10.9 million, or 433.1%, to $13.4 million compared to $2.5 million for the same quarter of the previous year. And earnings per share were boosted by the company’s share repurchase program. Over the quarter, the company repurchased 460,120 shares on the open market spending approximately $43.2 million on stock during the quarter.
The fact that World Acceptance has been purchasing a significant amount of its own stock suggests that management is confident about the future. It also suggests that management believes the stock is undervalued at present. Given this share buyback activity, we see the buying from CAS Investment Partners as a bullish signal. The hedge fund clearly believes the stock will rise as the US recovers from Covid-19.