Following insider buying at smaller companies can be a very profitable trading strategy. Smaller companies 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-listed company, Heritage-Crystal Clean Inc (HCCI:US). Heritage-Crystal Clean operates in the environmental services market, providing services such as containerized waste management, parts cleaning, used oil collection, wastewater vacuum services, and antifreeze recycling. It is listed on the Nasdaq and currently has a market cap of $870 million.
Insider buying at Heritage-Crystal Clean
Our data shows that on July 27, CEO Brian Recatto purchased 150,000 shares at a price of $27 per share in a private transaction. This trade cost the insider $4.1 million and increased his holding to 820,505 shares.
Good trading track record
Mr. Recatto – who has served on the board of directors since 2012 and became CEO in February 2017 – has a good track record when it comes to timing his stock purchases well. In May 2020, he picked up shares when the stock was trading at $14. Meanwhile, in May 2016, he snapped up stock when it was trading at $10.
This latest trade from Mr. Recatto indicates that he expects the stock to continue its long-term upward trend. Not only has the insider invested a considerable amount of money in the stock, but he has also increased the size of his position significantly.
Record Q2 results
Heritage-Crystal Clean recently posted a strong set of Q2 results that were miles ahead of estimates.
For the period, revenue was up 34% to $156.6 million. Analysts had been expecting $139.4 million. Meanwhile, earnings per share came in at 97 cents versus the consensus forecast of 51 cents. Adjusted EBITDA was a record $39.9 million, up 43% year on year.
Driving this strong performance was the company’s Oil Business segment, which includes used oil collection and re-refining activities, as well as sales of recycled fuel oil. During Q2, Oil Business revenue was a record high for a 12-week quarter at $64.8 million, an increase 45.3% year on year.
"Structural changes in the used oil re-refining business, along with refining industry capacity limitations, provided the foundation for our team to deliver excellent results during the second quarter. We couldn't be more excited about the performance of our Oil Business team who produced a record fifth straight quarter of operating margin above 33.0%," commented Mr. Recatto.
Despite this momentum, Heritage-Crystal Clean’s share price has trended down this year. This has pushed the stock’s valuation down to a low level. In light of this, we see the insider buying here as a bullish indicator.