TheStreetSweeper issues an alert for any investor considering stock in Care.com (CRCM).
The stock has recently ripped to an unsustainable level and is now dropping back a bit. We believe the current decline may be the beginning of a larger, well-deserved unraveling.
The Waltham, Massachusetts company connects caregivers, such as babysitters or tutors, and families through a website.
The stock ran way ahead of the company's true value, in our view, after Care.com announced it had beaten guidance expectations.
Though Care.com's operating losses were reduced, traders may have missed that the company lost $0.7 million in 2016 ... not exactly a hallmark of a booming business.
Investors may find the company website here. Meanwhile, TheStreetSweeper presents the top reasons we think Care.com should be renamed Care.bomb:
*1. Ridiculous: Insider Selling
We can't recall ever seeing such a high level of officers and directors selling their company stock.
Over the last year alone, insiders have sold over $40 million worth of stock.
Insiders have sold off over 4 million shares of their company.
Just on Monday, insiders filed documents showing they couldn't keep their fingers off the "Sell" button this month.
Here's a summary of insiders' recent sales ... Company execs sold over 53,000 shares worth about $570,000 last week:
(Source: Company SEC filings, TheStreetSweeper)
The stock those insiders sold March 9-10 included shares they got free the day before or the same day.
Investors need to be on the look-out for the shares left over from the shares (RSUs) granted March 9-10 :
(Source: Company SEC filings, TheStreetSweeper)
Regarding their March 9-10 transactions, officers can gradually sell those leftover shares in coming months. That doesn't include the additional officer-owned shares.
Now, look at the insider selling trend during the past year...
Over the last 12 months, insider buying has been miniscule at ~17,000 shares. But insiders have dumped about 4.3 million shares of stock.
The stock price at the time insiders sold indicates the sentiments of the people who know the company best.
(Source: CNN Money, TheStreetSweeper)
Along with the company officers, the past year's sellers include former chief investor Matrix Management, a 2015 investor/previous 17% owner sold off 3.7 million shares or 74.9 % last June.
So, according to the chart above, most insiders apparently think a generous selling price for the stock is around $8 or $9 per share.
As the chart below shows, the four officers have cut their holdings until they have just a little over 1 million shares left ... altogether!
(Source: Vickers, TheStreetSweeper)
Insiders can't sell over $40 million worth of paper and have other investors assume that the sellers are just paying for taxes or the kids' graduation party. In our view, insiders are dumping stock because they think it's high time.
Then again, who wouldn't sell when the P/E is this high ....
*2. Absurd P/E: Expensive Stock
We've seen a P/E or two of 20 or 30 in this exuberant market and considered them unbelievable.
But we don't recall seeing a price to earnings ratio quite like Care.com's ... an outrageously expensive 114!
This isn't even a biotech stock with a chance of somehow hitting on a boost to human health and maybe becoming a buy-out target.
Instead, this stock is extremely expensive and it offers only a website for babysitters and such ...
*3. Nonproprietary: No Secret Sauce
One reason Care.com's business is at risk is because it's simply an online service that connects caretakers with families.
Two kids in their parents' basement could bang out a similar website after three days of gulping energy drinks.
Care.com realizes that and wants to bring in a corporate client base.
But check out the big player in that field, Bright Horizons Family Solutions (BFAM), versus Care.com:
(Source: Yahoo, TheStreetSweeper)
So the industry average P/E is high at 34.96.... But Care.com is even worse.
Bright Horizons makes ~10 times more revenue and its earnings are ~2 1/2 times greater than Care.com.
Yet Bright Horizons is nearly 2 1/2 times cheaper than Care.com.
*4. Tripping Hazard: Rollup Business
Don’t let Care.com’s cash trip you up. The company had $61 million in December. But the net loss was $715k. Net cash decrease for the year was $146k.
But because the company is a roll-up, having acquired eight businesses since inception, things can go south pretty fast. In one quarter, they recorded a $36.2 million “oops” cost because their Citrus Lane acquisition turned out to be a bummer.
And the quarterly losses are not exciting:
*5. Business: Risk-Filled
Finally, the company is operating an inherently risky business. The Massachusetts Attorney General's office is looking into complaints against Care.com:
(Source: Boston Herald)
Indeed, the company has angered many consumers. Care.com has an A- rating even though it has had 631 consumer complaints filed with the Better Business Bureau.
Several recent complaints show customers are not happy:
And here's a recent complaint posted on Reviewopedia:
In this market, a lot of stocks are frothy for no good reason. But now, everything from jaw-dropping insider selling to consumer frustration bodes poorly for Care.com's stock price.
You just don't sell lots and lots of stock unless you think it's overvalued.
Iconic investor Warren Buffett advises that investors avoid high-priced popular stocks:
“Most people get interested in stocks when everyone else is," Mr. Buffett said. "The time to get interested is when no one else is. You can’t buy what is popular and do well."
TheStreetSweeper expects Care.com stock to suddenly lose its popularity and drop to around $8 near-term.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in CRCM and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected]