When it comes to touting their businesses, corporate executives sure can talk a good game.

But how many of them actually put their money where their mouth is?

And I’m not talking about owning a few stock options that were granted to them on top of their huge salaries. I want the people running the business to have some skin in the game. In other words, how many shares of the company do they personally own?

This will tell me whether or not their incentives are truly aligned with mine as a shareholder. When they’re making business decisions, are they more concerned about a fat bonus check or the long-term creation of shareholder wealth?

Long-Term Incentives

Executives with a lot of personal wealth tied up in the company are motivated to do what’s best for the business over the long-term. They are more likely to forego short-term gains at the expense of long-term value.

For instance, rather than push through a questionable deal because of some vague “synergies” that may or may not materialize, owners will consider whether or not real value is being created long-term. They’re actually trying to increase the long-term value of the business.

This is a simple concept that we’ve all likely experienced before. Think about the kind of service you typically get at a big box retailer compared to the service of a small business owner. The hourly worker doesn’t care whether or not you come back or if you refer friends and family to their store. The business owner does. Why? Because they have a long-term interest.

Do the people on the inside have a vested interest in the long-term value of the company? It’s an important item to consider when evaluating a stock to buy.

Here are 4 stocks with large insider ownership:

Pegasystems Inc. (PEGA)

Pegasystems provides Customer Relationship Management software that allows companies to manage a broad array of customer interactions. The company was founded in 1983 by Alan Trefler, who is still the company’s chairman and CEO. Insiders own more than 57% of the company, most of which is held by Trefler.

Despite two recessions over the last 10 years, Pegasystems has managed to grow its sales at a compound annual growth rate of 15.5%. It is a Zacks #2 Rank (Buy) stock.

Inter Parfums Inc. (IPAR)

Inter Parfums manufactures, markets and distributes perfumes and cosmetics. Together, co-founders Jean Madar and Philippe Benacin own nearly 50% of the company.

With the exception of 2009, the company has grown its sales at double-digits rates every year since 2001 at an average rate of 17.0%. It is a Zacks #2 Rank (Buy) stock.

Rollins Inc. (ROL)

Rollins is best known for its flagship brand Orkin. The company provides pest and termite control services around the world. Although much has been made about bed bugs recently, it actually accounts for only a tiny sliver of overall revenue. Nonetheless, the bug business has been good with EPS rising at an average annual rate of 21% since 2001.

The company was founded in 1948 by John Rollins and his brother, O. Wayne Rollins. The Rollins family is still actively involved in the business today. Randall Rollins is Chairman of the Board, Gary Rollins is President and CEO, and Glen Rollins is a Director. Altogether, insiders own nearly 57% of the shares outstanding.

It is a Zacks #2 Rank (Buy) stock.

Credit Acceptance Corp. (CACC)

Founded by Donald Foss in 1972, the company provides vehicle loans to consumers regardless of credit history. Despite the financial crisis, business has been booming with net income more than tripling since 2007. The stock trades at just 9.6x forward earnings despite a near 400% rise in share price since November 2008.

Mr. Foss is still the company’s chairman, and he owns 47% of shares outstanding with another 12% held in an annuity trust in his name. Altogether, insiders own about 80% of the company.

It is a Zacks #2 Rank (Buy) stock.

Conclusion

When evaluating a stock, it’s important to know whether or not the interests of the company’s executives are aligned with yours. Because when it comes to running a business, nobody cares as much as an owner.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
CREDIT ACCEPT (CACC): Free Stock Analysis Report
 
INTER PARFUMS (IPAR): Free Stock Analysis Report
 
PEGASYSTEMS INC (PEGA): Free Stock Analysis Report
 
ROLLINS INC (ROL): Free Stock Analysis Report
 
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