Research on legal insider trading shows that insiders at smaller firms tend to earn significantly greater profits following their purchases of company stock than insiders at large firms. One reason for this is that smaller companies are less researched than larger companies, meaning that they are often less efficiently priced.
In this report, we are going to highlight some bullish insider buying at a Swedish small-cap company, Bergman & Beving AB (BERGB:SS). Bergman & Beving is a supplier of industrial consumables and components to the industrial and construction sectors in the Nordic region. Its products include hand tools, metal and woodworking machinery, compressed air technology, personal protective equipment, work clothes, first aid equipment, fastening elements, screws, adhesives, kitchen fixtures, electrical devices and lighting, and lifting devices. The company is listed on the OMX Nordic Exchange Stockholm and currently has a market capitalization of SEK 3.2 billion.
Bergman & Beving AB: Insider Buying
Our records show that in March, six insiders at Bergman & Beving bought company stock in a cluster buying pattern. Among those who purchased stock were CEO Pontus Boman and CFO Peter Schoen. Combined, the six insiders spent around SEK 18.3 million (approx $2.1 million) on stock.
Bullish Cluster Buy
The fact that six insiders have purchased stock recently is very bullish, in our view. If just one insider has bought stock, we can’t be sure that the outlook for the stock is favorable – the insider may simply be an optimist. Yet six insiders buying stock tells us that there is a clear consensus of opinion within the company that the stock is undervalued. The fact that top-level insiders such as the CEO and CFO have purchased stock adds weight to the bullish signal.
Bergman & Beving’s most recent results, for the quarter ended 31 December 2020 (Q3), were very impressive. Despite the uncertain market conditions, the group managed to deliver an 11% increase in revenue. It also delivered an 84% increase in EBITA and a 139% increase in net profit. Meanwhile, for the nine-month period to the end of 2020, the group delivered an 8% increase in revenue and a 43% increase in net profit.
Looking ahead, the company said that it has “great potential” in all of its divisions and that it has “considerable room for improvement.” It also said that its intention is to complete additional value-generating acquisitions in 2021 and that it is in continuous discussions with several companies of interest.
In light of this performance and outlook, we see the cluster buy here as bullish.