Research on insider buying shows that insiders at smaller firms tend to earn significantly greater abnormal returns than insiders at large firms. Smaller companies are less researched than larger companies, meaning that they are often less efficiently priced.
Here, we are going to highlight some interesting insider buying in a Canadian small-cap stock, Sprott Inc (SII:CN). Sprott is a global asset management company that focuses on alternative investment solutions. Sprott’s specialized investment products include innovative physical bullion trusts, managed equities, and mining ETFs, as well as private equity and debt strategies. The company is listed on the Toronto Stock Exchange and currently has a market capitalization of CAD $956 million.
Sprott Inc: Insider buying
Our records show that recently, Sprott’s President and Chief Investment Officer Whitney George has made a number of large purchases. In mid-November, the insider picked up 30,000 shares, spending just under CAD $900,000 on stock. Then, on 17 December, the insider added another 20,000 to his position, spending approximately CAD $773,000 on shares.
We see this insider buying as bullish for a couple of reasons. Firstly, George has spent a substantial amount of money on stock and boosted his holding significantly. This suggests that he is confident the stock is set to rise. Our data shows that this buying activity represents the largest amount of insider buying at Sprott within a quarter for several years.
Secondly, as Chief Investment Officer, George is likely to have a good understanding of the intrinsic value of the business. Given his position, we see this insider transaction as an informative trade.
Strong Q3 performanceSprott posted a strong set of third-quarter results in November. For the quarter, total net revenues were USD $31.3 million, reflecting an increase of $14.1 million (82%) from the three months ended 30 September 2019. Meanwhile, net income was $8.7 million ($0.36 per share), reflecting an increase of $4.4 million from the same period in the prior year. Assets Under Management were $16.3 billion as at 30 September, up 17% on the figure at 30 June 2020. As a result of this strong performance, Sprott announced an 8.7% increase to the company's quarterly dividend, effective immediately.
In light of these strong results, and the substantial dividend increase, we see the insider buying here as a bullish signal.