When company insiders buy stock, investors tend to take notice. That's because insiders - including a company's officers and directors, as well as any shareholders with a stake of 10% or more - are generally assumed to have a much better understanding of the company's current position and strategic vision to drive growth, as well as any immediate pitfalls that could derail its prospects, than the average investor.
To help ensure transparency, insider buying and selling activity can be accessed through publicly available Form 4 filings. Not all of these transactions are particularly meaningful, from an investing perspective; for example, many insider transactions are executed as part of compensation agreements. But when a company insider buys shares with their own money, it's often a high-profile vote of confidence that's worth paying attention to.
With this in mind, here's a look at one penny stock - priced under $3 per share - that just landed yet another $2 million investment from its own chairman.
About Community Health Systems
Founded in 1985, Community Health Systems (CYH) is a leading hospital operator in the United States. The company owns, leases, or operates 80 hospitals in 16 states, with a focus on rural and urban underserved communities. The chain provides a wide range of healthcare services, including acute care, behavioral health, and outpatient care. Its market cap currently stands at $342 million.
CYH has been a dud over the past decade, down more than 93% during this time frame. On a YTD basis, the stock has tumbled 43%.
Chairman & Former CEO Loads Up On CYH
Wayne T. Smith, the non-executive Chairman of the Board of Directors at Community Health Systems, recently purchased company shares worth over $2.1 million. On Oct. 31, he bought exactly 1 million shares at an average price of $2.1100 for a total cost of $2,109,999, bringing his total stake in the company to 5.26%.
It's been over a year since Smith's last million-share purchase, which took place in August 2022. His average purchase price on that transaction was $2.95 per share.
Before that, his last big pickup of CYH was 1.2 million shares at $1.98 each in August 2019, back when Smith served as both CEO and Executive Chairman of the company.
Is CYH a Good Buy After Earnings?
For the latest quarter, CYH reported revenues of $3.09 billion, up 2% from the previous year, while losses narrowed to $0.33 per share from $0.52 per share in the year-ago period. Revenue was stronger than expected, but the quarterly loss was much wider than analysts predicted.
CYH sold off on heavy volume in the days immediately following the Oct. 25 report, and sank to new 52-week lows below $2 per share.
That said, CYH now appears to be valued attractively. It is trading at a forward EV/sales and EV/EBITDA of 1.07 and 9.05, which compare favorably to the sector medians of 3.28 and 12.34, respectively.
Analysts Expect CYH To Double
Overall, analysts remain optimistic about CYH, with an average “Moderate Buy” rating and a mean target price of $4.99. This indicates an expected upside potential of 100% from current levels.
Out of eight analysts covering the stock, three have a “Strong Buy” rating, one has a “Moderate Buy” rating, and four have a “Hold” rating.
