SGU

Star Group ($SGU) Director Buys $177K Shares, High 6.35% Dividend Amid Operational Red Flags

08/14/2025 16:07

Scott Baxter, Director of Star Group ($SGU), purchased 15,000 shares at $11.79 per share on August 13, investing a total of $176,850. This represents a slight premium to the current stock price ($11.65), signaling strong confidence from company insiders. Star Group is a Connecticut-based master limited partnership specializing in energy distribution, supplying heating oil, propane, gasoline, and diesel fuel to residential and commercial customers across the Northeastern and Mid-Atlantic United States. Established in 1995, the company serves approximately 404,600 full-service customers, 61,700 delivery-only customers, and 26,800 gasoline and diesel customers, employing around 3,039 full-time staff. Baxter's purchase is particularly noteworthy as it was a discretionary transaction rather than a pre-planned 10b5-1 automatic trade, indicating stronger conviction. In the small-cap market, insider buying often serves as a leading indicator of stock bottoms or upcoming positive developments. The first attraction point for investors is valuation. Star Group's price-to-earnings (P/E) ratio of 6.89-7.57x is significantly below the market average of 28x, while the price-to-sales (P/S) ratio of 0.22-0.23x suggests substantial undervaluation. The enterprise value-to-EBITDA multiple of 4.62x is well below the energy sector's typical range of 6-10x. More compelling is the dividend policy. The current dividend yield of 6.35% is more than double the sector average of 3%, with the company recently increasing its quarterly distribution to $0.185 per share, maintaining an annual rate of $0.74. The payout ratio of 41.57% appears sustainable. However, operational concerns exist. Recent quarterly revenue declined 7.8% year-over-year, with operating margin at -6.85%. This reflects industry-wide challenges including commodity price volatility, weather factors, and intensifying competition. Investors should closely monitor whether upcoming earnings reports show improvement in these margin pressures. Liquidity concerns also warrant attention. A current ratio of 0.70 suggests short-term liquidity constraints, while a debt-to-equity ratio of 85.31% indicates substantial leverage. With total debt of $288 million against cash holdings of just $28 million, financial flexibility is limited. Nevertheless, positive factors provide balance. Return on equity (ROE) of 20.80% and return on assets (ROA) of 6.98% demonstrate efficient capital utilization, while operating cash flow of $95.15 million and levered free cash flow of $66.62 million prove solid cash generation capabilities. The company's strategic initiatives are also noteworthy. Recent completion of a $68 million acquisition of a home energy distributor expanded market share, while enhanced HVAC installation and maintenance services diversify revenue streams. The decision to increase annual distributions by $0.05 per unit reflects management confidence in cash flow stability. A beta of 0.32 indicates low volatility relative to the market, adding defensive appeal particularly valuable for investors seeking stable returns during market uncertainty. For investment decision criteria, positive signals include additional insider buying, quarterly operating margin improvement, and current ratio recovery above 0.8. Conversely, continued revenue decline, dividend cut signals, or debt-to-equity ratio exceeding 90% would be warning signs. At a time when undervalued high-dividend small-cap stocks like Star Group are gaining attention in the small-cap market, insider buying can be interpreted as an attractive entry signal. However, considering the seasonality of energy distribution and commodity price volatility, a gradual approach is advisable for risk management. In conclusion, Star Group presents as an attractive high-dividend value play from a fundamental perspective, but operational difficulties and liquidity constraints require cautious approach. While insider buying is a positive signal, it alone is insufficient, and careful monitoring of future earnings improvements is essential.