Orthofix Medical Inc: Heavy Institutional and Insider Buying

Orthofix Medical Inc Heavy Institutional and Insider Buying
iStock.com/yong hee Son

Orthofix Stock’s Depressed Price Means Opportunity

The stock market is rallying on renewed optimism toward a U.S.-China trade deal, but there are still many stocks, especially in the small-cap space, that have been hemorrhaging.

Digging into the stock market trash bin, an intriguing battered-down small-cap medical devices company with a good risk/reward scenario is Orthofix Medical Inc (NASDAQ:OFIX).

Orthofix stock is down 32% from its 52-week high, hovering just above its range low. It’s underperforming the S&P 500 and Russell 2000, down almost three percent this year and five percent over the past year.

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Chart courtesy of StockCharts.com

I view the weakness in OFIX stock as a contrarian opportunity with the downside risk being around $47.50.

Orthofix operates in a healthcare niche that has high prospects, given the rapidly aging population in, not only the U.S. but globally. Operating in over 50 countries, the company develops technologies to aid in regenerative orthopedic and spine reconstruction.

My Bullish Case for OFIX Stock

The thing you will notice about Orthofix is the company’s steady revenue growth. It’s not explosive, but it’s in the single digits, accompanied by profitability and positive free cash flow.

Fiscal Year Revenue (Millions) Growth
2014 $402.3
2015 $396.5 1.4%
2016 $409.8 3.6%
2017 $433.8 5.9%
2018 $453.0 4.4%

(Source: “Orthofix Medical Inc.MarketWatch, last accessed September 5, 2019.)

Looking ahead, the revenue growth rate is estimated to hold at around 4.6% (to $473.9 million) this year and rise to 7.4% (to $509.1 million) in 2020, which would be a seven-year high. (Source: “Orthofix Medical Inc. (OFIX),” Yahoo! Finance, last accessed September 5, 2019.)

Along the way, Orthofix has delivered positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in the last five straight years, including growth in three of those years.

Fiscal Year EBITDA (Millions) Growth
2014 $40.0
2015 $30.2 -24.6%
2016 $53.3 76.5%
2017 $60.9 14.4%
2018 $55.1 -9.5%

(Source: MarketWatch, op. cit.)

Orthofix has also generated three straight years of generally accepted accounting principles (GAAP) profits, including a five-year high in 2018. The company’s GAAP diluted earnings per share (EPS) results have risen in the last five straight years.

Fiscal Year GAAP Diluted EPS Growth
2014 -$0.46
2015 -$0.15 67.4%
2016 $0.17 213.3%
2017 $0.34 100%
2018 $0.73 114.8%

(Source: MarketWatch, op. cit.)

On an adjusted basis, OFIX reported $1.78 per diluted share in 2018 and the company is expected to produce the same in 2019, prior to ramping up to $2.04 in 2020. (Source: Yahoo! Finance, op. cit.)

Orthofix also produced five straight years of positive free cash flow, which is impressive for a small company.

Fiscal Year Free Cash Flow (Millions) Growth
2014 $32.9
2015 $16.0 -51.3%
2016 $42.6 166.1%
2017 $24.3 -43.0%
2018 $36.3 49.5%

(Source: MarketWatch, op. cit.)

Analyst Take

Orthofix Medical Inc’s fundamentals and forward estimates show a company that has above-average potential and a stock that’s well priced after the price weakness.

Furthermore, Orthofix stock has strong institutional support, with 246 institutions holding 96.9% of the outstanding shares. BlackRock Inc. is the top holder, with a 14.9% stake, while Vanguard Group, Inc. has almost 10.4%. (Source: Yahoo! Finance, op. cit.)

Insider buying has been strong, which is a bullish sign. Over the past six months, insiders bought 197,759 shares of OFIX stock and sold only 31,312 shares.