Battered American Eagle Outfitters (AEO), Plus 2 Other Companies Witness Insider Buying

Numerous research studies have shown that individual investors can earn strong returns by following corporate insiders’ moves, which is one of the key reasons Insider Monkey monitors insider trading behavior. Individual investors and other stock market participants interested in identifying noteworthy insider trades are more than welcome to read our daily insider trading articles or search through our insider trading database. Each day the U.S. Securities and Exchange Commission receives hundreds of Form 4 filings, and the Insider Monkey team examines each of these filings daily and discloses a list of three companies with the most noteworthy insider buying as well as three companies with notable insider selling. We believe this service can showcase some attractive investment opportunities and insights that investors might find useful. Having said that, let’s proceed with the discussion of the recent insider buying activity in the shares of three companies.

Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35%-to-45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. 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 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). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.

Let’s begin our discussion by looking into the insider buying of shares of American Eagle Outfitters (NYSE:AEO). Executive Chairman and Chief Executive Officer Jay L. Schottenstein reported purchasing 164,257 shares at prices that ranged from $13.15 to $13.25 per share, all of which are held by SEI Inc. After the recent purchase, SEI Inc. holds an ownership stake of 3.70 million shares. The CEO also holds a direct ownership stake of 969,995 shares, along with an additional 9.52 million shares held through Schottenstein SEI LLC, several trust funds, and a limited liability company.

At the end of last week, the apparel retailer released an update for the fourth quarter, which was not received well by the market. American Eagle Outfitters (NYSE:AEO) disclosed that its fourth-quarter same-store sales increased by 4% year-over-year, below analysts’ estimates of a 4.9% increase. At the same time, the company reiterated its fourth-quarter earnings guidance of $0.40-to-$0.42 per diluted share. The shares of the teen-focused apparel retailer have declined by 10% over the past month, but are still up by 1% over the past year. Despite the disappointing same-store sales growth in the fourth quarter, the company seems to be trading quite cheaply at the moment. The stock trades at a forward price-to-earnings ratio of 12.01, which compares to an average of 15.75 for the companies in the S&P 500. A total of 40 hedge funds tracked by our team had stakes in the company at the end of the third quarter. Royce & Associates, founded by Chuck Royce, cut its position in American Eagle Outfitters (NYSE:AEO) by 5% during the July-to-September period, ending the quarter with 4.56 million shares.

The next two pages of this daily insider trading article discuss the insider buying reported at EXACT Sciences Corporation (NASDAQ:EXAS) and IDI Inc. (NYSEMKT:IDI).

EXACT Sciences Corporation (NASDAQ:EXAS) had not witnessed insider buying since early 2014; until this week. Lead independent director David A. Thompson snapped up 15,000 shares on Monday at a price of $6.99 per share, lifting his overall holding to 110,213 shares. The molecular diagnostics company developed an accurate, patient-friendly screening test, called Cologuard, for the early detection of colorectal cancer and pre-cancer. The FDA approved Cologuard for use as the first non-invasive colorectal cancer screening test in 2014, though the revenue generated from this product has thus far failed to impress investors. Earlier this week, EXACT Sciences Corporation (NASDAQ:EXAS) announced that it completed roughly 38,000 Cologuard tests during the fourth quarter, which generated revenue of $14.0 million-to-$14.5 million. The company also announced that it anticipates full-year 2015 revenue of $39.0 million-to-$39.5 million, after completing approximately 104,000 Cologuard tests during its first year of commercialization.

The shares of the company have declined by 75% since mid-January 2015, so the recent insider purchase might suggest a strong 2016 in terms of stock performance. Colorectal cancer is believed to be the second leading cause of cancer deaths in the nation and the leading cause of cancer deaths among non-smokers, so the company’s screening test might have great potential in the upcoming years. Only 17 hedge funds from our extensive database had stakes in the company on September 30. Samuel Isaly’s Orbimed Advisors reported ownership of 1.78 million shares of EXACT Sciences Corporation (NASDAQ:EXAS) as of that date.

Executives of IDI Inc. (NYSEMKT:IDI) also reported a high volume of their company’s shares over the past several days. To begin with, Mathew Conlin, President of Fluent LLC (which was acquired by IDI at the end of 2015), purchased a new stake of 20,000 shares on Tuesday at a weighted average price of $5.85, which is held by Conlin Family Foundation Trust. Furthermore, CEO of Fluent LLC Ryan Schulke, who also joined IDI’s Board of Directors, acquired a 20,000-share stake as well, at a cost of between $5.63 and $5.90 per share. Executive Chairman Michael H. Brauser purchased 5,000 shares last Thursday at a cost of $6.31 per unit, all of which are held by Grander Holdings Inc. 401K Profit Sharing Plan (of which the Executive Chairman is a trustee).

IDI Inc. (NYSEMKT:IDI), which was formerly known as Tiger Media Inc., is a holding company that mainly focuses on data analytics and serves as an information solutions provider to the risk management industry. In early December, the company completed the aforementioned acquisition of information solutions provider Fluent for $100 million in cash and 15 million shares of IDI common stock; a deal which is anticipated to leverage IDI’s advanced data analytics. IDI’s revenue from data fusion operations for the nine months that ended September 30 totaled $3.3 million, but the company anticipates that its top-line results will increase in the future due to an expansion of its sales organization, its penetration into new markets, and new product releases.

Disclosure: None