Insider buying can provide clues about a stock’s next move. Insiders sell company stock for a number of reasons. Yet they only buy stock for one reason – they expect it to rise.
Here, we are going to highlight insider buying at Kennametal Inc (KMT:US). Kennametal is a global supplier of specialist tools and industrial materials that is headquartered in the US. The business is separated into two divisions, Metal Cutting and Infrastructure. Its clients include businesses in the aerospace, construction, energy, engineering, and transportation sectors. It’s listed on the New York Stock Exchange and currently has a market capitalization of $2.24 billion.
Kennametal Inc: Insider Buying
Our insider transaction data shows that on May 4, a director at Kennametal, William Lambert, purchased 36,698 KMT shares at a price of $26.23 per share. This purchase cost the insider around $960,000 and increased his holding by over 200%.
The recent insider buying at Kennametal interests us for several reasons.
Firstly, Mr. Lambert has spent a large sum of money on company stock and has raised his holding by a significant amount in percentage terms. This suggests to us he firmly believes that the market is undervaluing the business. It’s worth noting that our Insider Model sees this trade as very bullish.
Secondly, Mr. Lambert’s has considerable industry experience. Previously he served at MSA Safety for over forty years, including as CEO of the company. MSA Safety served clients in many of the industries that Kennametal operates in which means that Mr. Lambert is likely to understand Kennametal’s end markets well.
Kennametal recently posted a solid set of Q3 fiscal 2022 results.
For the period, sales amounted to $512 million, up 6% year on year and up 8% on an organic basis. Adjusted earnings per share came in at $0.47, compared with adjusted EPS of $0.32 in the prior year quarter.
The group noted that strong operating leverage drove significant improvements in operating margin. It added that it expects strong operating leverage for the full year.
During the quarter, the company repurchased $15 million worth of stock under its share repurchase program, taking its total year-to-date purchases to $50 million.
"We posted strong results again this quarter marked by solid operating leverage that delivered approximately 300 basis points of adjusted operating margin improvement,” said Christopher Rossi, President and CEO.
"We are experiencing broad-based demand in most of our end-markets, despite short-term challenges in China related to Covid-19 and ongoing headwinds in Transportation. Given the confidence we have in our strategy to deliver improved margins and shareholder value over the long term, we continue to move forward with our share repurchase program," added Mr. Rossi.
In light of the confident tone from management here, we see the insider buying as a bullish indicator.