The history shows that corporate insiders’ purchases of company stock outperform stock market gauges by a significant margin. On that note, the investment community finds one primary reason corporate insiders purchase shares of their companies, which is that insiders believe the share price of their company’s stock does not reflect the “true” earnings power of the business. This thesis appears to be viable given that it is relatively hard to come up with alternative explanations as for why insiders spend their hard-earned money to purchase shares.
Retail investors and other stock market participants interested in insider trading behavior can always visit the website of the U.S. SEC to find fresh insider trading transactions. Nonetheless, it is quite cumbersome to scan through hundreds of Form 4 filings on a daily basis. With help from our insider trading database, Insider Monkey compiles sets of both insider buying and selling that deserve investors’ attention on a daily basis. Our team processed the Form 4 filings submitted with the SEC on Friday and pinpointed five companies with notable insider trading activity, which are discussed in more detail below.
At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).
Board Member at Innovator in Simulation Software for Product Engineering Purchases Shares
Let’s kick off our discussion by analyzing the insider buying activity observed at Exa Corp (NASDAQ:EXA). Board member Wayne D. Mackie bought 5,261 shares on Thursday and 5,304 shares on Friday at prices ranging from $14.87 to $14.93 per shares. Following the recent transactions, Mr. Mackie currently owns 80,027 shares.
The innovator in simulation software for product engineering has seen the value of its shares gain 27% since the beginning of the year. Exa Corp (NASDAQ:EXA) derives most of its revenue from the sale of simulation software using an annual capacity-based licensing model. The company’s license revenue for the three months that ended July 31 was $14.81 million, up from $12.98 million recorded for the same period of the previous year. The year-over-year increase of 14.1% was predominantly driven by increased consumption of simulation capacity by existing customers, as well as the addition of 16 new license customers. Jim Simons’ Renaissance Technologies LLC owned 181,600 shares of Exa Corp (NASDAQ:EXA) at the end of the June quarter.
The next two pages of this article will discuss another set of insider transactions reported with the SEC on Friday.