NCI Information Systems: Will the CEO sell some stock, please?

Investors are fond of watching insider sales of stock as a barometer of the likely direction of the stock price going forward. After all, if top executives are selling stock, they must not have much confidence that its price will keep rising.

NCI Information Systems Inc. (Nasdaq:NCIT), a Reston, Va.-based IT services company, however, has the opposite problem. NCI, which builds and services information technology systems for the federal government, has been growing steadily. It has even taken government contracts away from much larger competitors, but its stock is trading at a discount to its peers.

Why? The chairman and CEO of NCI, Charles Narang, owns about half the 13.4 million outstanding shares, and he’s not selling. Although 44% of the shares are owned by institutions, most big investors are reluctant to trade them. Trading volume is typically in the range of 26,000 shares, often with just a few thousand shares trading per day.

“I’ve spoken to a number of investors who love the company but say they can’t buy it,” says analyst Gautam Khanna at Cowen & Co.  “If they create a position in NCIT, they’ll move the stock price.” He believes the stock is 10% to 15% below where it could be otherwise. “I think the stock will keep that discount until that issue is resolved,” he adds.

That doesn’t mean the stock is not worth buying, though. Khanna rates the stock “outperform,” and he’s in the majority. Of 10 analysts covering the company, seven rate it a “strong buy,” one rates it a “buy,” and the other two rate it . . .

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