According to a filing with the SEC, Informatica Corporation (NASDAQ:INFA) Chief Marketing Officer Margaret Breya bought 4,000 shares of the company’s stock on January 29th at an average price of $36.21 per share. This gives her direct ownership of 34,000 shares if we include restricted stock units. Informatica is a $3.9 billion market cap business software and services company with a focus on products which help businesses manage and integrate data.
We track insider purchases because they tend to be bullish signs (read our analysis of studies on insider trading) since insiders will only buy the stock if they are confident the company will outperform expectations (if they were less confident or neutral they would prefer to diversify their wealth). Of course, not every stock bought by insiders outperforms the market and so it’s important to use insider purchases more like a stock screen- take a quick look at the resulting company and see if it is interesting enough to research further.
In the fourth quarter of 2012, Informatica’s revenues edged up 3% from Q4 2011, roughly in line with top-line growth rates from earlier in the year. Due to higher costs- sales and marketing expenses in particular- net income slipped 27% and for the full year Informatica Corporation reported 83 cents in earnings per share as opposed to $1.05 in the previous year. However, these earnings results beat market expectations and sent the stock up about 10%; it is now up 20% year to date after falling 18% last year. Informatica now trades at 44 times trailing earnings; the current-year P/E is 25. We think that it is too expensive for a value thesis, and the business does not appear to be growing. As a result we are not sure that this is a good insider purchase to imitate.
Tiger Cub Philippe Laffont’s Coatue Management reported a position of almost 4 million shares in Informatica Corporation at the end of September (see more of Laffont’s stock picks). John Thaler’s JAT Capital Management and Christopher Lord’s Criterion Capital, two technology-biased hedge funds, each initiated a position in the company during the third quarter. Find more stocks that JAT Capital Management and Criterion Capital like.
We would consider International Business Machines Corp. (NYSE:IBM), Tibco Software Inc. (NASDAQ:TIBX), EMC Corporation (NYSE:EMC), and Oracle Corporation (NASDAQ:ORCL) to be among Informatica’s peers. These stocks generally trade at discounts to Informatica; when we look at trailing earnings multiples, for example, we see P/Es of 20 or lower except in the case of Tibco, which trades at 33 times trailing earnings. Of course, Tibco and Informatica have market capitalizations less than $5 billion, while the other three companies we’ve mentioned are worth 10 to 45 times that figure; this means that they have more room to grow, as well as that they have at least some potential to be acquired. Still, as we’ve mentioned it’s speculative to see Informatica as a growth company and we don’t like to invest in stocks based on the fact that it is possible someone might acquire the company. Forward earnings multiples for these four peers are all less than 20; IBM, EMC, and Oracle have forward P/Es in the 11-12 range and at that price they might be worth exploring. Oracle in particular did very well in its most recent fiscal quarter, with net income up 18% compared to the same period in the previous fiscal year.
We don’t think that Informatica is undervalued, and in particular it might be expensive compared to its larger peers even if it hits its earnings targets for the year. Its recent earnings beat left its net income down from a year ago, and at the very least that trend would have to reverse before we could begin to think about what earnings multiple would be appropriate for the company. We would avoid the stock.
Disclosure: I own no shares in any stocks mentioned in this article.
