Insider buying usually means corporate insiders are bullish on their company’s future prospects. Furthermore, past research finds that insider purchases earn an abnormal return of more than 6% per year, so it does make sense to keep track of insider buying.
Retail investors monitoring insider trading behavior should keep in mind that insiders are prohibited from “short-swing” transactions, which represent a purchase and a sale of company stock within a six-month period. This means insider trading metrics are suitable for longer-term-oriented investors only, as Board members and executives are somewhat forced to act as long-term value investors. But how can investors find information-rich insider buying activity? Literally anyone could get the insider trading information for each publicly traded company on the SEC website, but it may be time consuming to search through thousands of companies out there. Insider Monkey compiles lists of noteworthy insider trading on daily basis, so one can save a great deal of time by simply subscribing to our daily newsletters. That said, let’s proceed to the discussion of notable insider trading activity recently registered at five companies.
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).
Struggling Home-Furnishings Retailer Sees CEO Buy Massive Block of Shares
Restoration Hardware Holdings Inc. (NYSE:RH) registered one of the most notable insider purchases in the stock market in recent weeks, so let’s find out who stands the company’s recent insider buying. Chairman and CEO Gary G. Friedman purchased 32,918 shares on Friday at prices varying from $27.26 to $28.05 per share. After the sizable purchase, Mr. Friedman currently owns a stake of 2.21 million shares.
The high-end home-furnishings retailer has lost 62% of its market value since the beginning of 2016, partially owing to mixed financial results for the first quarter of fiscal 2016 that ended April 30 and disappointing guidance for its second fiscal quarter. Restoration Hardware Holdings Inc. (NYSE:RH) has been struggling to ramp up production in response to massive demand for its freshly-introduced RH Modern furniture line. In March, the company also introduced the RH Grey Card program, a $100-a-year membership program that offers card holders a 25% discount on RH products. Steve Cohen’s Point72 Asset Management owned 599,300 shares of Restoration Hardware Holdings Inc. (NYSE:RH) at the end of March.
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The next two pages of this insider trading article will reveal notable insider transactions observed at four other companies.