Five insiders at Friedman Industries (FRD:US) just bought stock

Research shows that following insider buying in small-cap firms tends to be a more profitable strategy than following insider buying in larger firms. Smaller companies are less researched than larger companies, meaning that they offer greater potential for ‘surprises’ that can lead to outperformance.

In this report, we are going to highlight some interesting insider buying activity at a small US-listed company, Friedman Industries Inc (FRD:US). Friedman Industries is a manufacturer and processor of steel products that is based in Texas. It is listed on the NYSE American stock exchange and currently has a market cap of $68.8 million.

Insider buying at Friedman Industries

Our data shows that between October 13 and October 14, five insiders at Friedman Industries purchased stock at prices of between $7.38 and $7.85 per share. Those who bought shares were:

• CEO & President Mike Taylor (10,000 shares)

• Board member Sharon Taylor (2,400 shares)

• Board member Joe Williams (6,500 shares)

• Board member Max Reichenthal (2,957 shares)

• Board member Durga Agrawal (8,000 shares)

Combined, the five insiders invested around $230,000 in company stock.

Bullish cluster buying pattern

This buying activity is worth highlighting due to the fact that there’s a clear cluster buying pattern here. Cluster buying – where multiple insiders at the same organization are buying company stock simultaneously – is typically a very bullish signal.

It’s worth noting that the cluster of buys involves trades from the CEO – who is likely to have a superior level of information on the business – and a number of industry experts. Mr. Reichenthal is the President of Texas Iron and Metal. Meanwhile, Mr. Agrawal is the President of Piping Technology & Products Inc. All of these insiders are likely to have a good understanding of Friedman’s prospects.

Transformational acquisitions

Earlier in the year, Friedman Industries acquired steel processing facilities in East Chicago, IN and Granite City, IL from Plateplus, Inc. These acquisitions – which brought in revenue of approximately $53.6 million and earnings before tax of approximately $4.3 million in the last quarter – have been described by the company as “transformative.”

In its latest quarterly results, management explained that the acquisition of facilities in Granite City and East Chicago significantly expand the company’s competitive geography, allowing it to capitalize on opportunities in the mid-western part of the US – a region that has historically been out of Friedman’s competitive reach. It added that the successful execution of the acquisitions should provide considerable shareholder value going forward.

“The acquisition we completed during the 2022 quarter is transformative for Friedman in a multitude of ways,” said President and CEO Mike Taylor. “I am proud of the strategic initiatives we have implemented in my time with the company and believe successful execution will provide meaningful shareholder value,” he added.

In light of these acquisitions, and the fact that the stock has a very low valuation right now, we see the insider buying here as a bullish indicator.