As the second quarter earnings season is slowly coming to an end, blackout periods which restrict corporate insiders from trading securities are passing. In fact, corporate insiders have been piling up shares at a pace not seen for several weeks, which is great news for the investment community. Of course, the current level of insider buying does not match the levels witnessed in early 2016 amid the massive broader market sell-off, but it does inspire optimism.
But why would anyone bother to know how many shares corporate insiders are purchasing at any specific time? Peter Lynch, the well-known former manager of the Magellan Fund at Fidelity Investments once said that “Insiders might sell their shares for any number of reasons, but they buy them for only one: They think the price will rise.” Indeed, insider buying is usually perceived as a bullish signal, though investors monitoring insider trading metrics should keep in mind that insiders may be wrong on some occasions, just like anyone else. Without further ado, let’s have a look at a list of five companies that had insiders report stock purchases with the SEC on Friday.
Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
Casual-Dining Chain Board Member Buys Sizable Block of Shares Amid Stock Price Weakness
To begin with, Texas Roadhouse Inc. (NASDAQ:TXRH) had one member of its Board purchase a sizable block of shares this past week. Board member James R. Zarley bought a 23,800-share stake on Wednesday at a price tag of $42.23 each, a stake held entirely by the James R. Zarley Living Trust. Mr. Zarley also holds a direct ownership stake of 104,000 shares.
The casual-dining chain has seen its market cap jump by 26% since the beginning of the year despite experiencing a notable pullback in early-August after the company announced its financial results for the second quarter ended June 28. The company’s second quarter total revenue increased by 11.9% year-over-year to $508.81 million, reflecting a higher number of restaurants combined with comparable-restaurant sales growth of 4.5%. Texas Roadhouse Inc. (NASDAQ:TXRH), which operates 499 restaurants in 49 states and five foreign countries, is on track to open 30 company-owned restaurants in 2016, including seven Bubba’s 33 restaurants. The growing restaurant company opened 14 company-owned restaurants, including three Bubba’s 33 restaurants, in the first half of 2016. D.E. Shaw & Co. L.P., founded by David E. Shaw, was the owner of 436,569 shares of Texas Roadhouse Inc. (NASDAQ:TXRH) at the end of March.
The next two pages of this article will reveal four other companies where spur-of-the-moment insider buying recently took place.