What does the term “insider trading” mean and why do investors need to keep track of insider trading behavior? Insider trading involves the buying and selling of equity securities by individuals who hold access to material, non-public information. While insider trading activity can be both legal and illegal, this distinction is not very important for the non-insiders monitoring insider trading metrics for investment purposes.
Let’s move on to the question of whether investors should keep tabs on insider trading behavior or not. Indeed, corporate insiders have a better understanding about their companies’ business operations and future prospects than any of us, so their spur-of-the-moment transactions can serve as great tips for outsiders. There aren’t many reasons corporate insiders are purchasing shares in their own companies, with the primary reason being that their companies’ shares are severely undervalued. On the other hand, insiders can sell shares for any number of reasons, which may have nothing to do with current market conditions or any firm-specific developments. However, as corporate insiders usually follow the pattern of buying low and selling high, spontaneous insider selling should not be ignored by the investment community. That said, let’s have a look at a set of noteworthy insider transactions reported with the SEC on Wednesday.
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Cluster of Insider Buying is Forming at Struggling Specialty Apparel Chain
Soon after New York & Company Inc. (NYSE:NWY)’s President and Chief Operating Officer, John M. Worthington, purchased 11,500 shares on January 13, two other insiders have boosted their equity holdings in the company so far. To start with, Board member James O. Egan snapped up 5,206 shares on Monday at a price tag of $2.08 each, a purchase that lifted his overall holding to 70,561 shares. Non-Executive Chairman Grace A. Nichols, former CEO of Victoria’s Secret, bought 10,000 units of common stock last Tuesday at $2.21 each, boosting her ownership to 303,026 shares.
The shares of the specialty retailer of women’s fashion apparel and accessories are up 3% in the past 12 months, but have lost 29% of their value in the past five years. The management of New York & Company Inc. (NYSE:NWY) recently said that comparable store sales for the nine weeks that ended December declined by 1.7% due to a challenging retail landscape, characterized by soft traffic and a highly promotional environment. As more insiders at the specialty apparel chain have been purchasing shares as of late, one may anticipate a recovery of the company’s performance. New York & Company has also been faced with some criticism from one shareholder, who recently revealed dissatisfaction with the poor stock performance and the management’s failure to deliver on some promises made several years ago (e.g. cost savings and a long-term target of high single-digit operating margin). Brett Hendrickson’s Nokomis Capital owned 1.00 million shares of New York & Company Inc. (NYSE:NWY) at the end of September.
Let’s head to the next two pages of this insider trading article, where we organize a discussion around fresh insider buying and selling at four other companies.