Following insider buying at smaller companies can be a very profitable trading strategy. Smaller companies are less researched than larger companies, meaning that they offer greater potential for outperformance.
In this report, we are going to flag some interesting insider buying activity at a small US-listed company, Telos Corp (TLS:US). Telos is a provider of cyber, cloud, and enterprise security solutions. Its customers include military, intelligence, and civilian agencies of the federal government, allied nations, and commercial organizations. It is listed on the Nasdaq and currently has a market cap of around $184.38 million.
Insider Buying at Telos
2iQ data shows that between May 11 and May 16, four insiders at Telos purchased stock. Those who bought shares were:
Chairman and CEO John Wood (400,000 shares @ $2.27 per share)
Board member Fredrick Schaufeld (435,305 shares @ $2.32 per share)
Board member Bradley Jacobs (5,000 shares @ $2.20 per share)
Executive Vice President of Security Solutions Mark Griffin (10,000 shares @ $2.80 per share)
Combined, the four insiders spent around $1.94 million on the stock.
Large CEO Purchase
There are two things that are worth highlighting here.
Firstly, Chairman/CEO John Wood has made a substantial purchase. Mr. Wood has been with the company since 1992 and is an expert in the cybersecurity field. He is a frequent speaker on cybersecurity at industry and government events, and even testified at a congressional committee hearing on “Cybersecurity: What the Federal Government Can Learn from the Private Sector.” Given his background, he is likely to have an excellent understanding of Telos’ prospects.
Secondly, Mr. Schaufeld has an investment background. Currently, he is a managing director of SWaN & Legend Venture Partners (SWaN), a consumer-focused VC firm that he co-founded. He is also a partner in Monumental Sports and Entertainment, which owns the Washington Capitals (NHL), Wizards (NBA), Mystics (WNBA), Capital City Go-Go (NBA-G) and the Capital One Arena.
It’s worth noting that our Insider Model views this buying as bullish.
Better-than-expected Q1 Results
Telos recently posted solid first-quarter results that were above the high end of the company’s guidance range and analysts’ forecasts.
For the period, revenue amounted to $35.2 million, beating estimates of $32.4 million. Meanwhile, the company posted a loss of 4 cents, versus estimates of a 13-cent loss.
Looking ahead, the company reaffirmed its guidance for the year. This was seen as a positive development by investors, as Telos lowered its guidance in both March and November.
“We delivered $35.2 million of revenue in the first quarter of 2023 and expanded gross margins 66 basis points to 38.3%. We also reduced our GAAP net loss by 35% to $10.7 million. All metrics exceeded the high end of our guidance range,” commented Mr. Wood.
“The Board and I remain focused on rebuilding and growing our revenue base throughout this transition year,” he added.
In light of these results, and the fact that the stock has a price-to-sales ratio of just 1.5 right now, we see the insider buying as a bullish development.
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