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Independent Director Invests in Kingsway Financial Services

- By Kyle Ferguson

Independent Director Joseph Stilwell purchased 16,100 shares shares of Kingsway Financial Services (KFS) for $5.71 per share on March 16. The transaction was documented in a Form 4 filing with the Securities and Exchange Commission.

Stillwell now owns 3,772,218 shares of the company.

Kingsway Financial Services has a market cap of $125.53 million, an enterprise value of $326.41 million, a price-book (P/B) ratio of 2.55, a price-sales (P/S) ratio of 0.73 and a forward rate of return (Donald Yacktman (Trades, Portfolio)) of 259.55.

Kingsway Financial Services was incorporated in 1989. Kingsway Financial is a Canadian holding company with operating subsidiaries located in the U.S. The company operates as a merchant bank primarily engaged, through its subsidiaries, in the property and casualty insurance business. Kingsway conducts its business through two segments: Insurance Underwriting and Insurance Services.

Kingsway Financial Services market price has gained an estimated 31% over the previous year.

According to GuruFocus, Kingsway Financial Services has a 5 of 10 financial strength rating with a cash-debt ratio of 0.16, an equity-asset ratio of 0.11 and a Beneish M-Score of -1.80 indicating that the company is a manipulator of its financial statements. The Piotroski F-Score of 3 is low, which usually implies poor business operation.

The company has a 1 of 10 profitability and growth rating. It has an operating margin of -6.44%, a net margin of 0.46%, a return on assets (ROA) of 0.24% and a three-year revenue growth rate of -3.20%.

Kingsway Financial Services has several warning signs for that investors must pay attention to.

Over the previous five years Kingsway Financial Services has averaged declines in its revenue -1.04%, net income -4.11%, earnings per share -20.66%, capital spending -16.09%, and its reported cash flow has declined by an estimated -8.98%.

The company's operating margin has also been in decline at an average decline rate of -26.6% over the previous five years.

It is possible that Stilwell purchased 16,100 shares to give the company some momentum. Its market price has declined by an estimated 10% since Jan. 30.

Stilwell may have also decided to purchase shares because Kingsway Financial Services is trading below its intrinsic value according to the Peter Lynch chart below.

Disclosure: Author does not own any shares of this company.

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This article first appeared on GuruFocus.