Previous research shows that insider buyers have a relatively good feel for near-term and long-term developments within their companies. Although the current regulatory system with regard to insider trading imposes the short-swing rule, which forces insiders to hold freshly-acquired shares for six months before cashing out, corporate insiders are found to earn abnormal returns when holding positions for six months or longer. Indeed, corporate insiders have valuable information, which practically explains why their purchases tend to outperform broader market benchmarks. In fact, it is impossible to design and implement a regulatory system that could prevent insiders from trading profitably, and there is no need to. As long as insider transactions do not diminish the trust in equity markets, which could force outsiders to flee those markets, there is no need for stricter regulatory frameworks for insider trading. With that in mind, the following article will discuss the insider buying activity observed at three small-priced and seemingly overlooked 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).
EVINE Live Inc. (NASDAQ:EVLV) saw six different insiders purchase shares this week. Truth be told, this massive cluster of insider buying must be interpreted as a bullish sign by all investors. To start with, Nicholas J. Vassallo, Senior Vice President and Corporate Controller, purchased 16,700 shares on Monday at prices ranging from $0.84 to $0.86 per share. Mr. Vassallo also received a grant of 46,023 restricted shares as a long term incentive award. After the recent transactions, Mr. Vassallo currently owns a stake of 101,430 shares, including restricted stock units. Interim Chief Executive Officer Robert J. Rosenblatt snapped up 305,000 shares on Monday and Tuesday at prices varying from $0.90 to $1.01 per share, boosting his holding to 335,570 shares. Director Lisa A. Letizio bought a new stake of 15,000 shares on Monday at a weighted average cost of $0.99. The Director also holds an indirect ownership stake of 32,344 shares held through a trust fund, called Lisa A. Letizio Revocable Living Trust. Moreover, Damon E. Schramm, Senior Vice President, General Counsel and Secretary, acquired 20,000 shares on Monday at prices that fell between $0.92 and $0.94, as well as received a grant of 46,875 restricted shares, which boosted his stake to 71,375 shares. Chief Financial Officer Tim A. Peterman reported the purchase of a new stake of 160,000 shares at a weighted average price of $0.90, which is entirely held by his wife. Last but not least, Jaime Nielsen, Vice President of Human Resources, bought 19,000 units of common stock on Monday and received a grant of 38,352 restricted shares, which lifted her stake to 73,991 shares.
EVINE Live Inc. (NASDAQ:EVLV) is a digital commerce company that operates a 24-hour television shopping network, named EVINE Live, through which the company offers a wide range of brand name and proprietary products in the following categories: jewelry & watches; home & consumer electronics; beauty; and fashion & accessories. Even though the company managed to generate more revenues during fiscal 2015 than during the previous year, EVINE’s bottom-line results disappointed both the management and investors. The company’s net sales for fiscal 2015 that ended January 30 totaled $693.31 million, up from $674.62 million reported for the prior year. Nonetheless, EVINE’s fiscal 2015 net loss reached $12.28 million, as compared to a net loss of only $1.38 million for fiscal 2014. Even so, the management anticipates to reduce its full-year operating expenses by $5 million by implementing corporate overhead reductions and other operating expenses cuts. Shares of EVINE have declined 84% in the past 52 weeks and appear to be in a bottoming out phase at the moment. According to a freshly-submitted 13D filing, Jeffrey Bronchick’s Cove Street Capital owns 5.32 million shares of EVINE Live Inc. (NASDAQ:EVLV), which account for 9.3% of the company’s total number of shares.