After several weeks of extremely sluggish insider buying, the insider trading activity on the buy side has finally started to show signs of life. Considering the bunch of Form 4 filings disclosing insider buying submitted with the SEC on Tuesday, one can expect this week’s dollar volume of insider buying to increase significantly relative to the volume registered last week. As the saying goes, corporate insiders buy shares in their own companies for one straightforward reason: they believe those shares are poised to gain value in the foreseeable future. Past research has shown that non-insiders can beat broader market benchmarks by mimicking insiders’ purchases, which is the main reason Insider Monkey keeps tabs on insider buying activity. Insider Monkey analyzed numerous Form 4 filings submitted with the SEC this week and identified three companies with notable insider buying, of which one registered a cluster of insider buying.
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).
Nike Had Board Member Buy Some Shares Last Week
Let’s kick off our discussion by looking into the insider buying at Nike Inc. (NYSE:NKE), which had not witnessed any insiders buy shares for quite some time until last week. John C. Lechleiter, who joined Nike’s Board of Directors in June 2009, purchased 1,000 Class B shares on Thursday at $60.18 apiece. After the recent purchase, the Board member currently owns 22,682 Class B shares.
The shares of the world’s largest athletic apparel manufacturer have gained 19% in the past 12 months, but are down 4% since the beginning of 2016. Although Nike shares are not doing great thus far in 2016, there is good reason to believe that the stock can reach a new all-time high by the end of the year. Nike Inc. (NYSE:NKE)’s futures orders for NIKE Brand footwear and apparel scheduled for delivery from March through July, ahead of the Rio 2016 Olympics and the UEFA European Football Championship, totaled $12.6 billion and were 17% higher excluding currency changes than the orders registered in the same period of 2015. More importantly, futures orders in China increased 36% year-on-year, after increasing at a rate of 34% in the same period of the prior year. The increase in demand for Nike products in the world’s second-largest economy can be attributed to the fast-growing health and fitness industry in the country, with Direct-to-Consumer (DTC) revenues increasing 47% year-on-year in the first nine months of fiscal 2016 that ended February 29.
Shares of Nike are currently changing hands at around 24.2-times expected earnings, significantly above the forward PE multiple of 17.9 for the Consumer Discretionary sector. David Keidan’s Buckingham Capital Management upped its stake in Nike Inc. (NYSE:NKE) by 17% during the March quarter to 289,925 shares.