PFX

PhenixFIN Corp ($PFX) Management's Year-Long Share Buying Spree Points to Opportunity in 6x P/E Undervaluation

06/20/2025 03:55

The confidence that PhenixFIN Corp ($PFX) senior management demonstrates in their own company's stock is sending important signals to investors. The pattern of Chairman David Lorber's consistent share purchases over the past year shows a markedly different trajectory from typical insider trading activities at this North American small business investment specialist. PhenixFIN Corp is a business development company (BDC) founded in 2010 that primarily invests in small to mid-market North American companies valued between $25 million and $250 million. Through investments ranging from $10 million to $50 million per transaction, the company engages in various forms of investment including first and second lien secured loans, subordinated debt, unitranche loans, and also actively participates in portfolio company management through board involvement. Currently classified as a small-cap stock with approximately $102 million market capitalization, the company operates with an internally managed structure employing nine full-time staff members. Examining Chairman Lorber's purchase timeline reveals clearer intentions. The buying began in June 2024 when shares traded around $43, escalating to a major purchase in December. The December 18 single transaction of $616,000 worth of shares represents more than portfolio adjustment—it signals strong conviction. This was followed by continued purchases in February and March 2025, with the most recent acquisitions on June 16 and 18 totaling $48,000. Such persistent buying by management demonstrates unwavering belief in the company's intrinsic value. Interestingly, Chairman Lorber wasn't alone in his conviction. CFO Ellida McMillan and several directors also purchased shares during similar periods. McMillan's purchases in June 2024 and March 2025, along with Director Lowell Robinson and Director Karin Hirtler-Garvey's February 2025 purchases, suggest organization-wide optimistic outlook that transcends individual investment decisions and likely represents strategic organizational judgment. The earnings picture presents a mixed narrative. Q1 2025 earnings per share declined to $1.22 from $2.19 in the prior year period, but revenue increased 8.6% to $6.22 million. Notably, revenue exceeded analyst expectations of $5.76 million by 7.9%, maintaining topline growth momentum. However, declining net income raises profitability concerns. Looking at full-year 2024 results, revenue jumped 37% to $22.18 million with net income significantly improving to $18.62 million. This suggests temporary profitability pressure within a longer-term growth trajectory. Current valuation metrics highlight compelling investment appeal. The price-to-earnings ratio of 6.12x compares favorably to market average of 23.5x and financial sector average of 19.4x. Price-to-book ratio of 0.61-0.63x indicates trading below book value. Five-year total returns of 195% significantly outperformed the S&P 500's 92% over the same period. Beta of 0.31 provides lower volatility than the market, enhancing appeal as a stable investment option. The BDC business model requires attention to specific factors. Interest rate environment changes and credit risks among portfolio companies directly impact performance. While the debt-to-equity ratio of 0.87x remains at appropriate levels, leverage risk persists. Whether recent quarterly profitability pressure represents temporary phenomena or structural issues requires monitoring. Forward guidance suggests company management expects flat revenue growth over the next two years, more conservative than the 5.8% average growth rate for the U.S. capital markets industry. However, this cautious approach may reflect commitment to portfolio quality management rather than aggressive expansion. While earnings per share growth of only 0.27% is projected for next year, significant upside potential exists given current undervaluation. Investors should particularly watch for profitability recovery in upcoming quarterly results. If cost control leads to margin improvement while revenue growth continues, current undervaluation could resolve quickly. Conversely, persistent profitability deterioration might require reassessing management's optimistic outlook. Additionally, renewed interest rate pressure or deteriorating small business credit conditions could challenge the entire BDC sector. In conclusion, PhenixFIN Corp presents an intriguing investment opportunity where strong management conviction meets undervaluation. More than a year of consistent insider buying appears based on deep business understanding beyond simple financial metrics. Current price levels suggest considerable upside potential, though the BDC structure's sensitivity to macroeconomic changes and credit risks requires careful consideration.

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