Investors often monitor insider buying activity to gauge executive confidence in a company's stock. When executives, board members, or major shareholders purchase shares, it suggests they believe the stock price will rise. This insider optimism can be a bullish indicator for other investors.
However, recent insider buying seen in Alphatec Holdings (ATEC) stock may on the surface look baffling to market participants. Down 63.6% on a YTD basis, the company's share price has moved into the penny stock category this year.
Additionally, the company's latest quarterly results missed the mark, as well, and failed to stem the decline in the share price.
However, insiders appeared to see a bargain in ATEC after the disappointing results. Shortly after the stock's single-day plunge of 34% post-earnings, two directors at the company made sizeable purchases of Alphatec stock.
About Alphatec's Insider Buys
Founded in 1988, Alphatec Holdings (ATEC) is a medical device company focused on the design, development, manufacturing, and marketing of spinal implants, surgical instruments, and biologics. The company primarily serves spine surgeons, and its market cap currently stands at $885 million.
On Aug. 2, one day after the stock's brutal post-earnings reaction, Alphatec board member David Demski bought 40,000 ATEC shares at $6.56 each, while director Keith Valentine bought 39,000 shares for an average price of $6.55. While Valentine invested $255,451 to make the purchase, Demski invested $262,400.
These transactions upped Demski's stake in the company to 0.1698%, while Valentine's rose to 0.0585%.
ATEC's new two-year low of $5.74 was set the next trading day after these insider buys, on Aug. 5, and the stock closed last Friday fractionally below both purchase prices.
Inside ATEC's Q2 Results
The current weakness in the company's stock was exacerbated by Alphatec's results for the latest quarter, which clearly disappointed market participants. The company reported its 16th consecutive quarterly loss in Q2FY24. Although losses narrowed to $0.29 per share from $0.43 per share in the prior year, that figure came in wider than the consensus estimate. Further, this was the fourth straight quarter where the company's losses were wider than the Street's estimates.
However, it's not all doom and gloom in ATEC's report, and there were some green shoots that insiders like Valentine and Demski may feel investors have overlooked.
In the June quarter, Alphatec reported revenues of $145.57 million, up 24.5% from the previous year. This top-line result surpassed the Street's estimates by $1.03 million, with 20% growth in new surgeon adoption particularly aiding the overall rise.
The company also raised its revenue guidance for the full year to $602 million, up from $601 million earlier. Over the past five years, Alphatec's revenues have clocked an impressive CAGR of 40.07%.
Operating margins improved as well during the quarter, climbing to 3.8%, compared to a negative margin of 2.7% in the year-ago period. The company also expanded its footprint in Q2, with 244 surgeon training engagements.
In terms of liquidity, Alphatec closed the quarter with a cash balance of $99.8 million, much higher than its short-term debt levels of $2.3 million, indicating no solvency issues in the near term.
Considering its robust balance sheet and operational efficiencies, analysts are forecasting forward revenue growth of 27.51% for Alphatec, compared to the sector median of 8.85%.
Alphatec's Growing Market
Alphatec is a key player in the growing spinal surgery products market. The industry, which was valued at about $13.3 billion in 2022, is forecasted to reach $20 billion by 2031. This represents a CAGR of 4.5%. Rapid developments in minimally invasive surgeries and an aging population are among the key drivers for this growth.
Alphatec, with a 5% market share, and as the fastest-growing pure-play spine surgery specialist in this growing industry, can be expected to be a key beneficiary of this trend.
What's the Analyst Opinion on ATEC?
Leading brokerage firm Morgan Stanley downgraded Alphatec recently to “Equal Weight” from “Overweight” with a price target of $8, down from $16.
In a note, the broker said that investors will “need to see crisper execution on this profitability transition before wading in." However, in the same breath, they added that Alphatec “deserves credit for proving out the viability of its product portfolio and driving clear spine market share gains.”
Overall, analysts have a rating of “Strong Buy” for ATEC stock, with a mean target price of $18.77. This indicates an upside potential of 197.5% from Friday's close. Out of 12 analysts covering the stock, 10 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 1 has a “Hold” rating.
