Following insider buying at smaller companies can be a very profitable trading strategy. Smaller firms 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 at a small US company, Stagwell Inc (STGW:US). Stagwell is a digitally-focused global marketing firm that is headquartered in New York. Its services include advertising and marketing, data analytics and insights, business consulting, corporate communications, market research, social media strategy and communications, and e-commerce management services, and more. It is listed on the NASDAQ Global Select Market and currently has a market capitalization of $1.06 billion.
Stagwell Inc: Insider Buying
Our data shows that between November 30 and December 6, board member Eli Samaha bought 742,961 STGW shares at prices of between $7.49 per share and $8.14 per share. The purchases, which cost a total of around $5.9 million, were made for Samaha’s investment firm, Madison Avenue Partners LP, which is one of Stagwell’s largest shareholders.
This insider activity caught our attention due to the fact that our data shows that Madison Avenue Partners – which is an opportunistic, value-focused investment manager – has increased the size of its position by a significant 15% with these trades. This suggests that the investment firm, which was founded by Mr. Samaha, sees significant value in the stock at present.
It’s worth noting that Mr. Sahama had been invested in MDC Partners – which merged with Stagwell earlier this year – for many years. This means he is likely to know the business very well.
Stagwell’s recent Q3 results showed that the group is seeing good results from its merger with MDC Partners.
For the quarter, pro forma net revenue totalled $498.1 million, an increase of 25.2% year on year. Meanwhile, pro forma adjusted EBITDA for the three-month period was $100.3 million versus $89.3 million in the prior year period, an increase of 12.4%. Net new business wins for the quarter totaled $63.7 million.
On the back of these good results, the group raised its full-year adjusted EBITDA guidance. It now expects adjusted EBITDA of $370 million to $380 million. That’s a lot higher than the full-year EBITDA guidance of $190 million to $200 million posted in its Q1 results.
“Stagwell’s third quarter results make one thing very clear: the combination is working. With net new business of $64 million, this is a strong first quarter as a newly combined company,” said Mark Penn, Chairman and CEO.
“Organic pro forma net revenue growth of 23% for the quarter, as well as growth from 2019 of 14%, are evidence of the company’s recovery from the pandemic and transition to a new phase of overall growth,” added CFO Frank Lanuto.
In light of these strong results, we see the insider buying here as a bullish indicator.