Here's something you don't see every day: Executives and directors of a publicly held company, exercising stock options and holding on to the stock.
OK, not all of the stock. But insiders at corporate used-car salesman CarMax
According to Yahoo!
While there are many reasons why a company insider might want to sell his shares (to diversify his portfolio or make the down payment on a new McMansion, for example), there are only two major reasons for insider buying. The insider may be selflessly putting his own money on the line in a fit of "window dressing" -- making a brave show of confidence in his doomed company. Either that, or one of the guys who knows the business best thinks its shares are undervalued. Considering the scale of the insider purchases going on at CarMax, I am inclined to believe that we are seeing the latter here.
As to whether the insiders' faith in CarMax is justified, I suspect it is. Sure, when investing, I place great faith in a company's generation of free cash flow. And no, CarMax is not free cash-flow positive -- yet. But over CarMax's past two years as an independent company (Circuit City
Given the company's cash-flow trend and the insider purchases, investors may want to take a second look at this company. It's a bit of a gamble, but for investors with a long-term view, I suspect the odds are on their side on this one.
Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.