When insiders at smaller companies are buying stock, investors should take note. Small-cap stocks are often less efficiently priced than large-cap stocks, and research shows that the largest gains from insider transactions tend to come from the small-cap area of the market.
In this report, we are going to highlight some bullish insider buying in a US small-cap stock, Mastercraft Boat Holdings Inc (MCFT:US). Mastercraft is a leading manufacturer of recreational powerboats. It is listed on the NASDAQ Global Market and currently has a market capitalization of $498 million.
Mastercraft Boat Holdings Inc: insider buying
Our records show that in mid-December, two insiders at Mastercraft purchased stock. On 16 December, Lead Independent Director Roch Lambert purchased 2,900 shares, spending $74,000 on stock. Then, on 17 December, Director Peter Leemputte purchased 3,900 shares, spending $76,000 on stock. Combined, these purchases represented the largest amount of insider buying at Mastercraft Boat Holdings within a quarter for several years.
Confident the stock is undervalued
This insider buying is significant for a number of reasons. Firstly, both insiders increased their holdings substantially. Our data shows that Lambert increased his holding by 20% while Leemputte increased his holding by 21%. This suggests they are confident the stock is undervalued.
Secondly, Roch – who has been member of the board of directors since 2016 – has significant experience in the boating industry. Prior to his retirement, Mr. Lambert served as a Chief Executive Officer of Rec Boat Holdings, an international designer, manufacturer and distributor of powerboats, from 2010 to 2016. This means he is likely to have a good read on the prospects for the industry.
The most profitable Q1 in company history
Mastercraft recently enjoyed its most profitable first quarter in company history. For the quarter, net income was $9.6 million or $0.51 per diluted share, 10.9% higher than the figure in the prior-year period. Meanwhile, diluted adjusted net income per share, a non-GAAP measure, was $0.58, a 7.4% increase from $0.54 in the prior-year period.
As a result of this strong performance, and the strength of retail demand, the group raised its guidance for full-year fiscal 2021. For the year, it now expects consolidated net sales to grow in the mid 30% range year-over-year, with adjusted EBITDA margins approaching 15%, and adjusted earnings per share growth in the mid 80% range year-over-year.
“Our results reflect progress on scaling and accelerating production while efficiently managing our supply chain to meet increased demand,” said Fred Brightbill, Chief Executive Officer and Chairman. “The strength of our order book and increased consumer interest in recreational boating give us confidence in our outlook and ability to create shareholder value” he added.
Given these strong results, and the increase in guidance, we see the insider buying here as a bullish signal.