Taking a quick look at the chart of death-care operator Stonemor Partners (STON) you might reach the conclusion that it had…well…died.
Based on no new earnings releases (or no new data at all, for that matter) Stonemor started to roll over and die in late July and has lost nearly 30% of its value in less than a month. The company released its quarterly earnings in mid August, but the results were nothing out of the ordinary. The trigger for the collapse seems to be a bearish article published on StreetAuthority. But that article had no new information; it was based on information that was months old and that should have been priced into the stock months (if not years) ago. The volatility in the stock got so bad that management felt obligated to issue a press release…that essentially said they had no idea why the stock was crashing.
I’m long Stonemor and continue to see a lot of value in the stock. Its cash flows are highly predictable, it’s backed by strong demographic trends in the aging of the baby boomers, and it pays a high dividend (technically “distribution” as STON is organized as an MLP) that I consider safe for the foreseeable future. (For my bullish thesis on StoneMor, see “Death Demographics and Dividends.”)
Whenever I see a large decline for no obvious reason, I wonder if Mr. Market might know something that I don’t. And at times like these, I like to take a look at what the company insiders are doing.
Interestingly, the gentlemen running Stonemor seem to find value at current prices and have been putting their own money into the stock.
| Insider | Position | Date | Buy/Sell | Shares | Shares Owned Following This | Trade Price ($) | Cost ($1000) |
|---|---|---|---|---|---|---|---|
| LAUTMAN MARTIN R | Director | 42228 | Buy | 9,700 | 141,248 | $26.60 | $258,020.00 |
| LAUTMAN MARTIN R | Director | 42221 | Buy | 205 | 131,548 | $24.30 | $4,981.5 |
| LAUTMAN MARTIN R | Director | 42216 | Buy | 163 | 131,343 | $30.54 | $4,978.02 |
| LAUTMAN MARTIN R | Director | 42185 | Buy | 166 | 131,180 | $29.99 | $4,978.34 |
| LAUTMAN MARTIN R | Director | 42153 | Buy | 166 | 131,014 | $29.94 | $4,970.04 |
| HELLMAN ROBERT B JR | Director | 42139 | Sell | 49,911 | 2,271,858 | $29.83 | $1,488,845.13 |
| LAUTMAN MARTIN R | Director | 42124 | Buy | 163 | 130,848 | $30.52 | $4,974.76 |
| LAUTMAN MARTIN R | Director | 42094 | Buy | 171 | 130,685 | $29.09 | $4,974.39 |
Director Martin Lautman regularly buys about $5,000 in Stonemor stock per month. But earlier in August, after the bottom had fallen out, he made a much larger purchase of $258,020.
There is one glaring $1.5 million sale by director Robert Hellman. At first glance, that might be a cause for concern. Except that this is actually a routine transaction for Mr. Hellman. Hellman is one of Stonemor’s largest shareholders, and about once per quarter he sells a significant block of shares.
Large insider buying in the face of a selloff is generally a good sign. All managements talk up their shares, but when they back it up with large purchases using their own money, I take their words a lot more seriously.
I am a buyer of Stonemor at these prices. But the question of “why” the stock price has collapsed remains unanswered.
My answer: Stonemor is a small-cap stock with a market cap of just $740 million and an average daily trading volume of less than a quarter million shares per day. A small handful of relatively large investors selling the stock would be enough to make it move like this. Small-cap stocks are volatile. It’s just “part of the game.”
It’s a non-answer, but it’s likely the only answer.
Disclosure: Long STON
