Although it is generally known that corporate insiders buy shares of their own companies for one simple reason (they believe Mr. Market severely undervalues those shares), insider trading watchers should still be very careful when incorporating insider buying data into their stock analysis process. It is true that insider purchases tend to beat broader market gauges on aggregate, but there may be some insider buying that does not have predictive power. For that reason, Insider Monkey would like to lay out three tips that could possibly enable retail investors to identify informative insider purchases.
The most important tip of the three is to look for clusters of insider buying, which usually suggest that there is a consensus among insiders that their companies’ shares are undervalued. Another tip is to avoid insider transactions conducted under pre-arranged trading plans, as fresh research shows that spur-of-the-moment insider purchases generate higher returns than those conducted under trading plans. Last but not least, insider trading watchers should look for long-time insiders who purchase shares for the first time. With that in mind, let’s have a look into a set of noteworthy insider transactions reported with the SEC after Thursday’s Thanksgiving holiday.
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Cluster of Insider Buying at Struggling Take ‘N’ Bake Pizza Chain
Four different insiders at Papa Murphy’s Holdings Inc. (NASDAQ:FRSH) piled up some shares last week before Thursday’s Thanksgiving holiday. To start with, Jean M. Birch, Chair of the company’s Board, purchased 10,000 shares on Tuesday at prices varying from $4.58 to $4.85 per share, lifting her overall holding to 20,095 shares. Dan Harmon, the Senior Vice President of Operations at Papa Murthy’s, bought a new stake of 10,515 shares at the beginning of the previous week, a stake held by an IRA trust for the benefit of the executive. Mr. Harmon also holds a direct ownership stake of 16,114 shares. Chief Marketing Officer Brandon Solano snapped up 10,001 shares on Tuesday at prices that fell between $4.73 and $4.75 per share. Mr. Solano currently owns an aggregate of 30,002 shares after the recent purchase. Last but not least, Victoria Blackwell, Chief Legal Officer and Senior Vice President of Talent, acquired a new stake of 215 shares on Tuesday at $4.64 apiece, a stake held in a custodial account for the benefit of Ms. Blackwell’s minor child.
The franchisor and operator of a Take ‘N’ Bake pizza chain has seen its market capitalization plunge by 58% since the start of the year, as the company’s bake-at-home pizza business has clearly lagged behind rival businesses. Nonetheless, after suffering a disappointing quarter due to an increasingly competitive environment, both in the pizza category and more broadly, Papa Murphy’s Holdings Inc. (NASDAQ:FRSH) does have a plan to turn things around. The pizza chain plans to launch its first-ever national advertising campaign next year, set to run for at least six weeks. Will this represent an inflection point for Papa Murthy’s business? Only time will tell. Nevertheless, the company’s insiders seem confident in the future prospects of its business, as reflected by the insider buying discussed above. Israel Englander’s Millennium Management owns 30,000 shares of Papa Murphy’s Holdings Inc. (NASDAQ:FRSH) as of September 30.
The next two pages of this insider trading article will discuss the fresh insider trading observed at four other companies.