NEWT

NewtekOne($NEWT) Management's $1M Buying Spree Over Past Year, P/E 5x Extreme Undervaluation vs Leverage Concerns

06/25/2025 03:42

NewtekOne Inc ($NEWT) is capturing investor attention due to sustained insider buying activity by management over the past year. NewtekOne is a comprehensive financial services company headquartered in Boca Raton, Florida, specializing in small and medium-sized businesses. Through its subsidiary Newtek Bank, the company provides one-stop financial and business services including SBA loans, commercial real estate loans, electronic payment processing, payroll management, and IT consulting. Founded in 1998 and rebranded as NewtekOne in 2023, it has a market capitalization of approximately $277 million. The most notable pattern is Chairman and CEO Barry Sloane's consistent buying behavior. Starting with purchases of 5,000 shares each at $12.92 and $12.54 on June 17, 2024, he continued with 6,649 shares in August ($12.13) and a massive 40,134 shares in September ($11.77). His buying continued into 2025, with three separate purchases totaling 30,000 shares in May alone, plus another 2,000 shares in June. His total purchase amount exceeds $1 million. Sloane isn't acting alone. Nearly all executives are participating, including CFO Michael Scott Price, directors Gregory Zink and Richard Salute, and officer Peter Downs. Notably, in May, director Richard Salute purchased 5,000 shares for $55,284, and Gregory Zink bought 2,000 shares for $20,780. Most transactions are pursuant to 10b5-1 trading plans, indicating systematic, pre-planned purchases that carry greater significance. This aggressive buying appears driven by management's confidence in earnings improvement. NewtekOne has consistently beaten analyst expectations in recent quarters. Q4 2024 EPS of 69 cents exceeded both the prior year's 53 cents and consensus estimate of 66 cents. Revenue surged 117.6% year-over-year to $125.16 million, an 82% surprise above the $68.87 million estimate. Q1 2025 also showed strong performance with revenue of $113.12 million, up 94.1% year-over-year and 79% above the $63.22 million forecast. While EPS of 35 cents matched consensus, the company maintains solid growth momentum. Management raised full-year 2025 EPS guidance to $2.10-2.50. However, investors must not overlook significant risk factors. The primary concern is high leverage, with debt-to-equity ratios of 258-575%, well above industry averages. Additionally, operating cash flow remains persistently negative, creating reliance on external financing. Trailing twelve-month operating cash flow was -$175 million, with levered free cash flow at -$401 million. Nevertheless, the company maintains $270 million in cash and an extremely high current ratio of 31.49, providing adequate short-term liquidity. NewtekOne is taking steps to improve its financial structure, including terminating three office leases to save $2 million annually and expanding its loan credit facility to $170 million. What about investment attractiveness at current price levels? At the June 24 closing price of $10.86, the P/E ratio is just 5.53x, significantly below the market average of 20-25x. The price-to-book ratio of 0.99x means the stock trades near book value. The dividend yield of approximately 7% is attractive. Looking at price action, the stock started 2024 at $12.76, rose to $14.21 in July, fell to $10.47 in September, rebounded to $14.95 in November, then dropped to $9.64 in April 2025 before settling in the current $10-11 range. Year-to-date returns of +13% outperform the S&P 500's +3.6%, but one-year and three-year returns of -6% and -29% respectively show longer-term underperformance. Considering future prospects, in an optimistic scenario, continued management buying and earnings improvement could drive valuation normalization. The current 5x P/E appears excessively undervalued, and even a move to industry average 10-12x would imply 100%+ upside potential. Growth in the SMB lending market and diversified revenue streams are additional positives. In the base case scenario, market concerns about high leverage and negative cash flow will likely persist, keeping the stock range-bound near current levels. However, steady earnings growth and dividends should provide downside support. In a risk scenario, rising interest rates or economic recession could increase SMB loan defaults, making high leverage potentially fatal. Failure to improve operating cash flow could create additional capital raising pressure. Investors should monitor key metrics including Q2 earnings in late July for operating cash flow improvement, net interest margin defense, and loan default trends. Debt ratio reduction efforts and cost-cutting realization are also important monitoring points. NewtekOne presents a complex investment case where positive factors like strong insider buying signals, undervaluation appeal, and solid earnings growth coexist with risk factors including high leverage and cash flow concerns. While it may appeal to investors seeking dividend income and long-term value appreciation, those sensitive to financial leverage should approach with caution.

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