There are two main reasons insiders invest in their own companies. They either believe that business performance is about to get better, or that the company is undervalued. Whatever the reason, insider buying signals that those within the business expect the company’s share price to go up.
In this report, we are going to highlight some interesting insider buying at Colfax Corp (CFX:US). Colfax is an American technology group that operates two companies: DJO Global and ESAB. DJO is a global pioneer in the development and distribution of innovative medical devices while ESAB is a world leader in fabrication solutions. Colfax is listed on the New York Stock Exchange and currently has a market capitalization of $6.8 billion.
Colfax: Insider Buying
Our insider transaction data shows that between 2 August and 4 August, Colfax Chairman Mitchell Rales bought stock on four occasions. In total, the insider purchased 250,200 CFX shares, spending around $11.5 million on stock.
Mitchell Rales is a top-level insider, having co-founded Colfax in 1995, and having served as a director since. He is likely to have deep insight into the company’s operations and future prospects.
What stands out about his recent buying activity is the size of the trades. The fact that the Chairman has spent over $10 million on company stock suggests that he is very confident the stock is set to rise. Our records show that Rales’ purchases are the largest insider purchases at Colfax for several years.
Increased Full-year Outlook
In late July, Colfax posted a strong set of second-quarter results. For the quarter, net sales amounted to $986 million, an increase of 59% year on year on a reported basis, or 48% on an organic sales-per-day basis. Meanwhile, adjusted earnings per share increased to $0.56 in comparison to $0.09 in the prior year period and exceeded the company’s previous guidance of $0.48 to $0.53. The group generated operating cash flow of $78 million and free cash flow of $58 million in the quarter, compared to operating cash flow of $37 million and free cash flow of $18 million in the Q2 2020.
“Our businesses continue to benefit from strengthening market demand and operating execution,” commented President and CEO Matt Trerotola.
On the back of these strong second-quarter results, Colfax raised its 2021 adjusted EPS outlook from $2.05 to $2.15, to $2.10 to $2.20. It also raised its free cash flow outlook from $250 million or more to $275 million or more.
In light of these results and the increase in guidance, we see the insider buying here as a bullish indicator.