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, and therefore offer more potential for outperformance.
Here, we are going to look at recent insider buying at a US-listed small-cap company, Innovative Solutions & Support Inc (ISSC:US). Innovative Solutions & Support provides the aviation industry with flight navigation systems and precision flight instrumentation equipment. Its clients include Boeing, American Airlines, Air Canada, NASA, and Amazon. It’s traded on the Nasdaq Stock Exchange and currently has a market capitalization of $155 million.
Insider buying at Innovative Solutions & Support
Our insider transaction data shows that between September 8 and September 27, 10% shareholder Christopher Harborne purchased 323,685 ISSC shares at prices of between $8.10 and $9.00 per share. These purchases cost Mr. Harborne around $2.5 million in total.
Mr. Harborne is a successful businessman and technology investor. He knows the aviation industry well and is the CEO of Sherriff Global Group, which trades private planes. He also owns AML Global, which sells aviation fuel. This would suggest he is likely to be able to accurately assess the intrinsic value of Innovative Solutions & Support.
It’s worth noting that our insider transaction data shows that these are the first insider purchases at the company since February 2019. It is therefore very significant that Mr. Harborne has chosen to increase his stake by over $2 million now. It suggests he is confident that the shares are currently undervalued by the market.
Innovative Solutions & Support produced encouraging 2022 Q3 earnings.
For the period, net sales were $6.9 million, up 12% on the year prior. Meanwhile, operating income rose to $1.7 million from $1.2 million a year earlier. At the end of the quarter, net cash stood at $14.5 million, up from $8.3 million at the end of the last fiscal year.
During Q3, the company received new orders of $12 million. And the backlog of orders as of June 30 was $12.6 million. These figures suggest the business is in good health.
It’s worth noting that during the quarter, the business brought in two experienced industry professionals. This will strengthen the board. A new CFO has also joined recently, and he has a strong track record of success in driving financial results.
“I am pleased to report another quarter of strong growth in revenue, operating income and cash flow. I believe we have a leadership team that will continue to drive growth and create value for our shareholders,” said Shahram Askarpour, CEO of Innovative Solutions & Support.
Given these Q3 numbers, we see insider buying at Innovative Solutions & Support as a bullish event.