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.
Here, we are going to highlight insider buying at UK small-cap firm Goodwin PLC (GDWN:LN). Goodwin owns a group of mechanical and refractory engineering companies that produce technical products for a number of different industries globally. It’s listed on the London Stock Exchange and currently has a market capitalization of approximately £274.52 million.
Insider Buying at Goodwin
Our insider transaction data shows that between December 20 and January 6, three insiders at Goodwin bought stock. Those who bought shares were:
- Managing Director Simon Goodwin (3,182 shares @ £37.50 per share)
- Managing Director Matthew Goodwin (3,110 shares @ £32.18 per share)
- Audit Committee Richard Goodwin (2,991 shares @ £33.42 per share)
In total, the three insiders spent a little under £400,000 on stock.
This insider buying activity is worth highlighting for several reasons.
Firstly, the two Managing Directors have over 30 years of experience at Goodwin between them. This means that they are likely to know the business extremely well. They are responsible for driving the business forward and it is therefore significant that they are buying company stock. Richard Goodwin was Managing Director of the business for 27 years, so it is notable that he has recently picked up stock too.
Secondly, the three insiders have invested a substantial amount of money in the company. This suggests that they firmly believe the shares are undervalued by the market.
Goodwin’s latest set of interim results were strong, with both of its divisions experiencing positive momentum throughout H1.
For the period, revenue came in at £89.3 million, up 23% year over year. Meanwhile, the trading profit was £9.1 million, up 17.9% on the same period a year earlier. This translated to a basic earnings per share (EPS) of 113.93 pence, up 37% on the year before.
Goodwin noted that it has recently won contracts with the military and in the nuclear waste sector. This has increased the Mechanical Engineering division’s revenue streams. At the same time, its Refractory Engineering division has continued to perform well, as mining companies have started to increase spending as the economy has recovered post Covid-19. This has benefited the pump businesses within the division.
“While there continues to be some global uncertainties due to the geopolitical environment and rising costs for consumers, the Group’s activity and profitability levels are expected to increase over the next twelve months as a result of the increased workload,” said the company in its management report.
Given these solid results, we see the insider buying here as a bullish development.