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.
Here, we are going to highlight insider buying at a US-listed small-cap firm, Mayville Engineering Company (MEC:US). Mayville Engineering is a manufacturing company that provides a broad range of prototyping and tooling, production fabrication, coating, assembly, and aftermarket services. It’s listed on the New York Stock Exchange and currently has a market capitalization of approximately $222.30 million.
Insider Buying at Mayville Engineering Company
Our insider transaction data shows that between November 3 and November 4, the President/CEO of Mayville Engineering Company, Jagadeesh Reddy, purchased 27,071 ALLE shares at an average price of $9.12 per share. In total, the insider invested around $250,000 in stock.
High Insider Score
Mr. Reddy has an MBA in finance and strategy from the Kellogg School of Management. He has worked at United Technologies Corp in an M&A role and as a Vice President in the Corporate Strategy division at Pentair PLC. Prior to joining Mayville Engineering Company he was a member of the senior leadership team at W.R.Grace where he was responsible for the Strategy and Growth function. This would suggest to us that he is able to accurately value a business.
It’s worth noting that Mr. Reddy isn’t the only insider to buy stock here recently. Our insider transaction data shows that the CFO topped up his holding back in August and another director picked up stock earlier this year. Overall, our Insider Model gives Mayville Engineering a high score of 5. This indicates that the insider sentiment at the company is very positive.
Strong Q3 Results
Mayville Engineering Company delivered a strong set of Q3 results.
Net sales grew around 25% versus Q3 last year to $136.3 million. Meanwhile, net Income was up from $0.3 million to $6.6 million. Adjusted EBITDA jumped to $16.1 million from $10 million.
Capital expenditure of $38.80 million during the quarter was higher than last year. However, this was due to an investment in new technology and automation to enable the business to grow. The capital expenditure level is due to return to normal levels next year. Net debt was manageable at $74.1 million.
On the back of the strong Q3, the company edged up 2022 full-year sales guidance to between $520 million and $540 million.
“MEC is poised to benefit from several long-term macroeconomic trends such as reshoring and outsourcing in the years ahead. Our relationships with top OEM customers have never been stronger and we are developing new growth opportunities in both current and new end markets, such as electric vehicles,” said Mr. Reddy.
Given these promising results, we see the insider buying here as bullish.