The CEO of Masimo Just Bought $1 Million Worth of Company Stock

If a CEO is spending millions of dollars on company stock, investors should take note. CEOs tend to be way ahead of analysts and portfolio managers when it comes to the performance of their companies and their stock purchases can provide valuable trading signals.

In this report, we are going to highlight a large CEO purchase at Masimo Corp (MASI:US). Masimo is a medical technology company that develops, manufactures, and markets a variety of noninvasive patient monitoring solutions. It also offers wearables for retail consumers. The company is listed on the Nasdaq and currently has a market cap of around $8.66 billion.

Insider Buying at Masimo 

2iQ’s data shows that on May 25, Masimo’s Founder, Chairman and CEO Joe Kiani purchased 6,365 MASI shares at a price of $157.16 per share. This trade cost the insider approximately $1 million and increased his direct holding to 366,055 shares.

Trading Skill

This trade is notable because Mr. Kiani’s last stock purchases were timed very well. Late last year, the insider spent around $6.0 million on company stock, picking up a total of 46,818 shares. In the following four months, the stock rose around 50%.

It’s worth noting that Mr. Kiani is the founder of Masimo. And he has served as CEO since its inception. So, there are unlikely to be many people who have a better understanding of the company, and its prospects, than him.

Share Price Fall

Masimo shares have taken a big hit in the last month or so. There are a few reasons why.

Firstly, the company’s recent Q1 results showed a significant decline in margins. While revenue jumped 86% year on year to $565 million (ahead of analysts’ forecast of $557.85 million) and earnings per share came in at 87 cents versus the consensus forecast of 83 cents, gross margin fell to 50.4% versus 67.3% a year earlier. The decline in margins was predominantly due to the acquisition of Sound United.

Secondly, Masimo is currently in a battle with activist investor Politan, which owns 9% of the company’s shares. Politan wants two seats on the board. It also wants to shake things up in order to extract more value from the company.

Third, healthcare stocks have experienced weakness recently on the back of debt ceiling uncertainty.

After the recent share price fall, the stock’s valuation is significantly lower than it was earlier in the year. With analysts expecting earnings per share of $4.45 this financial year, the forward-looking P/E ratio is now in the mid-30s.

Clearly, Mr. Kiani sees value at that multiple.

We see the insider buying activity here as a bullish development.