If multiple insiders at the same organization are purchasing company shares simultaneously, it’s often worth taking a closer look. This buying pattern – which is called ‘cluster buying’ – can be a strong indication that the stock is undervalued.
In this report, we are going to highlight a cluster buying pattern at Applus Services SA (APPS:SM). Applus Services is a Spanish company that provides inspection, testing, and assurance services. The company, which operates in over 70 countries, is split into four divisions: Automotive, Energy and Industry, Laboratories, and IDIADA (which provides engineering services and other services such as ground proofing). It’s listed on the Madrid Stock Exchange and currently has a market capitalization of €975 million.
Applus Services: Insider Buying
Our insider transaction data shows that between June 15 and June 16, three insiders at Applus purchased shares.
Those who acquired stock were:
- Current CEO Fernando Basabe (40,000 shares @ €6.50 per share)
- CFO and next CEO Joan Amigo (15,000 shares @ €6.56 per share)
- Chairman Christopher Cole (6,055 shares @ €6.42 per share)
Combined, the three insiders spent around €400,000 on stock.
This insider activity is worth highlighting for a few reasons. Firstly, all three of these individuals are top-level insiders that have served in their respective roles for many years. So, they are likely to have an intimate understanding of the business and its prospects. The fact that all three are buying stock simultaneously is very bullish, in our view.
Secondly, in late June, Mr. Basabe will be stepping down as CEO after more than a decade in the role. Usually, when CEOs leave their roles, they sell stock. However, in this case, Mr. Basabe is buying stock. This suggests that the insider sees a compelling investment opportunity right now.
All Divisions Performing Well
Applus’ recent Q1 results showed that the company has momentum right now with all divisions performing well.
For the quarter ended March 31, 2022, revenue amounted to €462.4 million, up 15.0% year on year (organic growth of 7.2%). Meanwhile, operation profit was up 18.4% year on year to €41.5 million with operating margin rising 30 basis points to 9.0%. Adjusted free cash flow surged 254% to €46.5 million.
Looking ahead, the company said that it remains confident in relation to business performance in 2022, with organic revenue expected to increase mid to high-single digits and adjusted operating profit margin expected to improve by 30 to 40 basis points year on year. It added that it has a strong acquisition pipeline.
In light of these results, we see the insider buying here as a bullish indicator.