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.
Here, we are going to highlight insider buying by a director at small-cap firm Forum Energy Technologies (FET:US). Forum Energy Technologies is an American company that offers support services to the energy sector globally. The company’s products increase the safety and efficiency of energy production and exploration. It’s listed on the New York Stock Exchange and currently has a market capitalization of approximately $169 million.
Insider Buying at Forum Energy Technologies
Our insider transaction data shows that between December 19 and December 20, a director of Forum Energy Technologies, Michael McShane, purchased 5,000 shares at a price of $30.07 per share. This cost the insider around $150,000 and increased his holding by 84%.
Private Equity Background
This trade is worth highlighting for a couple of reasons.
Firstly, Mr. McShane is an Operating Partner at Advent International, an international private equity fund. This means that he is likely to be extremely adept at valuing businesses and it is therefore interesting that he has upped his stake significantly here.
Secondly, the director is likely to know the company and the industry exceptionally well. He has been a director at Forum Energy Technologies for 12 years. As well as this, he has held director positions at several energy infrastructure companies. He was a director at Spectra Energy Corp for nine years, a director at Complete Production Services Corp for five years, and was a director at Superior Energy Services for nine years.
Forum Energy Technologies recently produced an encouraging set of Q3 results.
Q3 revenue came in at $182 million, up 6% up on Q2 and up 29% year on year. The Adjusted EBITDA figure of $17.8 million, up 15% on the quarter prior. Free cash flow amounted to $17.3 million.
Looking ahead, the group was confident that the positive momentum will continue into Q4. It expects full-year adjusted EBITDA to be towards the top end of the $50 million to $60 million guidance range and free cash flow for H2 to be between $30 million and $40 million.
“Conditions and activity within FET’s operating markets continue to strengthen. We are seeing demand growth for our differentiated portfolio of consumable and capital products driven by increasing U.S., international, and offshore activity. With the tailwind of this market and continued execution of our strategic initiatives, we expect further revenue growth, margin expansion and free cash flow generation,” said Neal Lux, President and Chief Executive Officer.
Given these positive Q3 results we see the recent insider buying at Forum Energy Technologies as a bullish development.