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 businesses, and as a result, tend to offer greater potential for ‘surprises’ that can lead to outperformance.
In this report, we are going to highlight some interesting insider buying at a small US company, RF Industries Ltd (RFIL:US). RF Industries specializes in the design and manufacture of interconnect products. Its products, which include RF connectors, coaxial cables, data cables, fiber optic cables, custom cabling, energy-efficient cooling systems, and integrated small cell enclosures are used in a range of markets including the wireless/wireline telecom, data communications, and industrial markets. The company is listed on the NASDAQ Global Market and currently has a market capitalization of $77.4 million.
RF Industries: Insider Buying
Our insider transaction data shows that in recent months, board member Mark Holdsworth has been aggressively buying RF Industries stock. Since 8 April, the insider has purchased stock on eight occasions, picking up 116,846 shares and spending a total of around $850,000. These purchases have increased his holding from 267,491 shares to 384,337 shares.
This insider activity is worth highlighting for two reasons. Firstly, Holdsworth’s buying pattern suggests that he is very confident the stock is set to rise. Not only has he spent a large sum of money on stock, but he has also increased the size of his holding by 44%.
Secondly, Holdsworth – who has been a board member since December 2020 – is an experienced investor. He is the Founder and Managing Partner of The Holdsworth Group, a trusted and sophisticated capital partner, advisor, and curator of alternative investments for family offices and corporations worldwide. Previously, he was a Co-Founder, Managing Partner and an Operating Partner of Tennenbaum Capital Partners, a Los Angeles-based private multi-strategy investment firm that was acquired by BlackRock in August 2018. It’s fair to assume that he knows what he is doing here.
Highest Backlog in History
RF Industries recently posted a solid set of second-quarter results. For the three-month period ended 30 April, net sales increased 11% to $11.06 million while net income came in at $4.85 million compared to a net loss of $0.18 million in Q2 2020. Diluted earnings per share for the period were $0.48 compared to -$0.02 in Q2 2020. The company noted that its current backlog was $22.8 million – the highest in its history.
Looking ahead, management was optimistic in relation to the company’s growth prospects. It advised that it is expecting the carrier market to recover and grow and that it anticipates industrial sales to expand. “We expect to achieve sequential sales growth in the current fiscal third quarter, and continue to expect a return to year-over-year revenue growth this year," commented President and CEO Robert Dawson.
In light of this outlook, we see the insider buying here as a bullish indicator.