Piggybacking insider trading has been a profitable investment strategy over the past several decades or so based on research, though new regulations and an increased use of stock as compensation for executives may alter the overall data in the coming years. That’s why it’s important as a retail investor to not piggyback each insider purchase, but rather, use relevant insider trading activity as part of their stock analysis and selection process. There is only one simple reason why corporate insiders purchase shares and that is that they believe the share price of their company’s stock is undervalued. These highly-informed individuals possess extensive knowledge about their companies’ businesses and industry conditions, which is the primary reason their purchases tend to beat broader market indexes. For that reason, the following article will discuss the insider buying activity registered at two small-cap healthcare companies and one micro-cap company.
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).
Let’s begin our discussion with the micro-cap company, which is Digital Turbine Inc. (NASDAQ:APPS). Chief Executive Officer William Gordon Stone III, purchased 150,000 shares on Wednesday at prices that ranged from $0.99 to $1.09 per share, lifting his stake to 512,080 shares. The CEO bought an additional 100,000 shares in mid-December 2015. Mr. Stone also holds options to purchase an additional 725,000 shares of common stock, so he clearly anticipates positive developments at the company in the foreseeable future.
Digital Turbine Inc. (NASDAQ:APPS) is a provider of end-to-end products and solutions for mobile operators, device original equipment manufacturers (OEMs) and other parties that allow them to efficiently monetize mobile content. The company operates through two business segments: Advertising and Content. The company’s advertising business includes products such as DT Ignite, a mobile application management software program that is pre-installed on devices to allow mobile operators and OEMs to manage and monetize applications installed on those devices like DT IQ, DT Media, and Appia Core. Digital Turbine’s content business includes products such as DT Marketplace, an application and content store, and DT Pay, a content management and mobile payment solution.
Digital Turbine generated revenue of $63.51 million during the nine months that ended December 31, up from only $18.02 million generated in the same period of the prior year. The increase was mainly driven by strong organic growth in DT Ignite. Let’s try to figure out how the company has been able to achieve this exceptional revenue growth. According to fresh statistics, there are more than 3 million apps available in the Google Play and iTunes stores, which makes it extremely hard for apps to stand out. But there are several ways through which app marketers can make their apps stand out from the crowd, one of which involves Digital Turbine’s DT Ignite. This application management software allows mobile operators to customize the home screens of customers’ new handsets through various arrangements with third-party application developers. In December 2015, ROTH Capital reiterated its ‘Buy’ rating on Digital Turbine’s stock but cut its price target on it to $6 from $9. Last but not least, shares of Digital Turbine have lost 70% over the past 12 months and might now represent an attractive investment opportunity. There were six hedge funds in our system with stakes in the company at the end of December, amassing 7.60% of its outstanding shares. Israel Englander’s Millennium Management was one of those, owning 700,000 shares of Digital Turbine Inc. (NASDAQ:APPS) as of December 31.
The next two pages of this article discuss the insider buying activity registered at Sarepta Therapeutics Inc. (NASDAQ:SRPT) and Flamel Technologies S.A. (ADR) (NASDAQ:FLML).