Research shows that following insider buying in small-cap firms tends to be a more profitable strategy than following insider buying in larger firms. Smaller companies are less researched than larger companies, meaning that they 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-listed company, Newpark Resources Inc (NR:US). Newpark Resources is a diversified company that provides solutions for energy and chemical businesses. Its subsidiary Newpark Fluids Systems is the world’s leading pure-play oil and gas and geothermal fluid solutions provider. The company is listed on the New York Stock Exchange and currently has a market cap of $267 million.
Insider buying at Newpark Resources
Our data shows that between August 15 and August 18, two insiders at Newpark Resources Inc bought company stock.
- Board member Donald Young (93,403 shares @ $2.67 per share)
- Board member John Minge (15,000 shares @ $2.65 per share)
Combined, the two insiders invested around $290,000 in stock.
This insider trading activity is worth highlighting due to the fact that Mr. Young is an experienced investor. Currently, he serves as the Managing Member of Race Rock Group LLC, a private holding company focused on non-control investments in private companies, industrial and commercial real estate, hedge funds, private debt, venture capital and other alternative investments, which he founded in May 2007. Earlier in his career, Mr. Young held various positions in private equity at Citigroup Venture Capital and Sciens Capital, and investment banking at Bank of America and Prudential Securities. Given his background, he is likely to have a good understanding of the stock’s intrinsic value.
Solid Q2 results
Newpark recently posted a solid set of Q2 results.
For the period, total revenues were $194.1 million compared to $176.4 million for the first quarter of 2022 and $142.2 million for the second quarter of 2021. Meanwhile, adjusted net income came in at $1.1 million versus a loss of $300,000 a year earlier.
"Our second quarter performance demonstrated progress in both of our businesses, with strong execution and improving market fundamentals contributing to a 10% sequential increase in revenues and continued improvement in EBITDA within our core business activities,” commented Matthew Lanigan, Newpark's President and CEO.
Looking ahead, the company said that it expects revenues and income to strengthen and operating cash flow to turn positive in Q3 due to the stabilizing supply chain environment, the continued ramp-up of deferred projects in the EMEA region, and the seasonal recovery in Canada. It added that divestiture actions would provide the opportunity for more than $70 million of cash generation in the coming months.
In light of these results, and the optimistic outlook from management, we see the insider buying here as a bullish indicator.