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 some insider buying in a US small-cap stock, Babcock & Wilcox Enterprises Inc (BW:US). Babcock & Wilcox specializes in renewable energy and environmental technologies for the power and industrial markets. It is listed on the New York Stock Exchange and currently has a market capitalization of $391 million.
Babcock & Wilcox Enterprises: Insider Buying
Our records show that on 10 February, Babcock & Wilcox’s CEO Kenneth Young purchased 17,094 BW shares at a price of $5.85 per share. This transaction cost the insider approximately $100,000.
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This insider activity is worth highlighting for a couple of reasons. Firstly, Young has made a number of well-timed transactions in the recent past. Last year, for example, he purchased 20,000 shares at a price of $2.44 in early September. In the next three months, the stock rose about 80%.
Secondly, several other top-level insiders at Babcock & Wilcox have purchased stock recently. Late last year, we observed purchases from both the CFO and the COO. Overall, our Insider Model views insider sentiment at Babcock & Wilcox as very bullish.
Babcock & Wilcox has been awarded a number of major contracts recently.
On 11 February, the company announced that its Environmental segment had been awarded a $13 million contract to design, supply and install a flue gas energy recovery system and advanced water treatment equipment for a waste-to-energy plant in Europe.
Meanwhile, on 2 February, the company announced today that its Thermal segment had been awarded a $15 million contract to design and supply two package boilers and related equipment for a Municipal project.
Turning to the financials, Babcock & Wilcox recently advised that it is well-positioned to achieve its 2021 and 2022 adjusted EBITDA targets of $70-$80 million and $95-$105 million, respectively. It also said that its backlog was $535 million at 31 December 2020 – 21% higher year on year.
In light of this momentum, we see the insider buying here as a bullish signal.