Most corporate insiders possess all the knowledge, characteristics, and skills that could be used to describe the “value-oriented” type of investors. First, insiders have a better understanding of their companies and industries than any of us. Second, the history shows that insiders are not afraid of acting as contrarian investors, which usually involves buying low and selling high. And third, they do have the necessary capital to take advantage of opportunities when they arrive. Nonetheless, one should still bear in mind that insiders are business people, not value-oriented investors. Of course, they do have a better idea of where their company’s business is heading, but they are not overly sophisticated investors and they are not too good at finding appropriate entry and exit points (insiders are widely-known for buying too early and selling too soon). This is why retail investors tracking insider buying activity should rather focus on the long term performance of insiders’ purchases. Indeed, Chief Executives Officers and other top executives tend to be the most informed individuals in any company, which is why their moves should be paid particular attention. For that reason, the following article will lay out a list of three companies that saw their most influential insiders purchase shares this week.
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 with the company that registered the highest dollar volume of insider buying among the three companies discussed in this article. Thomas D. Ebling, Chief Executive Officer and President of Demandware Inc. (NYSE:DWRE), purchased 30,000 shares on Wednesday at prices that ranged from $34.81 to $35.00 per share, boosting his direct ownership stake to 198,070 shares. His spouse also holds a stake of 257,524 shares.
Demandware Inc. (NYSE:DWRE) is a provider of enterprise-class cloud commerce solutions for retailers and branded manufacturers, which includes solutions for digital commerce and point of sale. The main pillar of the company’s business model relies on its technology platform called the Demandware Commerce Cloud, which allows customers to reach their consumers across all digital points available, such as eCommerce sites, mobile applications, and others. Demandware generates most of its revenue from subscriptions to its Demandware Commerce Cloud and related services, which are usually sold through both a direct sales force and indirect channels. The total number of eCommerce customer sites using the company’s solutions represents the best indicator of how the company’s business has been evolving over time. Demandware’s eCommerce customers were operating 1,506 sites at the end of 2015, significantly more than 1,143 sites operated at the end of 2014 and 820 sites at the end of 2013. The company’s 2015 subscription revenue, which accounted for 85% of total revenue, grew by $55.1 million or 37.8% year-on-year to $200.95 million. The increase was mainly driven by revenue from new eCommerce customers and an increase in revenue from existing customers. At the same time, the increase in revenue derived from existing customers was mainly attributable to higher revenues from existing sites and the launch of additional sites. Meanwhile, shares of Demandware are down 41% in the past 12 months, probably because investors had anticipated the company to grow at higher rates. The digital commerce solutions provider anticipates 2016 subscription revenue in the range of $260.0 million-to-$270 million, which appears to have disappointed investors. Ken Griffin’s Citadel Advisors reported owning 1.22 million shares of Demandware Inc. (NYSE:DWRE) through its latest 13F filing.