Research shows that following corporate insider buying stock in small-capitalization firms is more profitable than following insider buying at large-cap firms. Smaller companies are generally less researched than larger companies, meaning that they offer greater potential for outperformance.
Here, we are going to highlight some insider buying in a French small-cap stock, Cegedim SA (CGM:FP). Cegedim is a technology company that provides data and services linked to medical information, and customer relationship management (CRM) services, to healthcare companies. It is listed on the Euronext Paris and currently has a market capitalization of €368 million.
Cegedim: Insider buying
Our data shows that on 6 January, Cegedim’s Chairman and CEO Jean-Claude Labrune purchased 60,000 shares in the company at a price of €25.85 per share. This purchase cost the insider approximately €1.55 million.
We see this insider transaction as a high-conviction purchase due to its size. Last year, Labrune made eight purchases throughout the year. This recent purchase is larger than those eight purchases combined.
Our records also show that this is the largest insider purchase at Cegedim for over two years. The size of this purchase suggests that Labrune is very confident the stock is undervalued right now.
A return to growthCegedim shares have underperformed over the last six months. As a result of poor half-year results, in which revenue decreased by 4% and recurring operating income declined by 50%, the stock has fallen nearly 20%.
The outlook for the company appears to be improving, however. In the third quarter, the company reported a return to growth with like-for-like revenues up 1.9%. All divisions contributed to growth, however, growth was particularly strong in the company’s corporate sector.
Given the recovery in growth, we see the insider buying activity here as bullish. It suggests that the Chairman believes that performance is set to continue improving and that the stock is undervalued at present.