Research shows that following insider buying at smaller companies tends to be a more profitable strategy than following insider buying at larger firms. Smaller companies are less researched than larger companies, meaning that they offer greater potential for outperformance.
In this report, we are going to highlight some interesting insider buying in a US small-cap stock, Franklin Wireless Corp (FKWL:US). Franklin Wireless is a technology company that specializes in intelligent wireless solutions including mobile hotspots, routers, and modems as well as innovative hardware and software products that support machine-to-machine (M2M) applications and the Internet of Things (IoT). It is listed on the OTC Markets and currently has a market capitalization of $171 million.
Franklin Wireless Corp: insider buying
What has caught our attention here is a large purchase from President and 10% owner OC Kim. Form 4 filings show that on 25 September, the insider purchased 160,000 FKWL shares at a price of $2.50 per share. The total cost of the transaction was $400,000.
Source: 2iQ Research
This insider purchase is worth highlighting for a couple of reasons. Firstly, it is a substantial purchase. Our records show that it is the largest insider purchase at Franklin Wireless since late 2016.
Secondly, Kim has been President and a director at Franklin Wireless since September 2003. He has more than 23 years of experience in sales, marketing, and operations management in the telecommunications and information systems industries. It’s likely that the insider has deep insight into the company and its prospects. This purchase suggests that he believes the stock has the potential to climb higher.
Strong full-year results
Franklin Wireless recently posted strong full-year results. For the year ended 30 June, revenue was up 106% to $75.1 million while net income attributable to the parent company increased to $5.6 million, a positive swing of $6.8 million versus last year. The company ended the year with $34 million in cash and short-term securities on the balance sheet.
“Our fiscal 2020 financial results reflect Franklin’s ability to capitalize on the surge in demand for wireless connectivity brought on by the pandemic,” said OC Kim. “We were able to expand production to meet unprecedented demand from school districts, large carriers and other partners for advanced networking and connectivity technology as the country shifted to a work-from-home reality amidst the global pandemic,” he added.
In light of these strong results, we see the insider buying here as a bullish signal.