A Form 4 filed with the SEC has disclosed that Wesley von Schack, a member of the Board of Directors at Edwards Lifesciences Corp (NYSE:EW), directly acquired 2,000 shares on April 26th at an average price of $64.95 per share. Edwards Lifesciences is a $7.3 billion market cap medical device company with a focus on cardiovascular therapy products such as heart valves. We track insider purchases because studies show that stocks bought by insiders exhibit a small outperformance effect (read our analysis of studies on insider trading); we think that this is because it is generally rational for insiders to sell shares in order to increase diversification, and so buying should signal some level of confidence in the stock.
In the first quarter of 2013, Edwards Lifesciences Corp (NYSE:EW) increased its revenue by 8% versus a year earlier. With cost of goods sold actually decreasing, the company experienced a 27% increase in pretax income if we ignore a large special gain during the quarter. Adjusted earnings per share slightly missed analyst expectations, but overall we’d still consider these to be good results.
At current prices Edwards Lifesciences Corp (NYSE:EW) trades at 20 times trailing earnings, so the market is already pricing in high growth for at least a short period. Wall Street analysts are not particularly optimistic; they do expect earnings per share to increase by a bit over the next couple years but consensus forecasts for 2014 give a forward P/E of 18- which we would still consider a valuation dependent on considerable improvements on the bottom line. The stock price has fallen 23% in the last year against a rising market as investors have become less confident in the company, potentially instigating von Schack into buying these shares.
We track quarterly 13F filings from hedge funds and other notable investors to help us with our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year) and can use our database to see which filers owned Edwards at the beginning of this year. We can see that Sectoral Asset Management was the only filer we track which owned over $20 million of the stock at the end of December; Sectoral’s 13F shows it owning 1.4 million shares (find Sectoral’s favorite stocks). Billionaire Steve Cohen’s SAC Capital Advisors initiated a position of about 170,000 shares during Q4 (see Cohen’s stock picks).