Past research finds predictable or routine insider trading that is not informative for the future of publicly traded companies, so retail investors monitoring insider trading metrics need to learn how to filter out information-rich trades. But how can investors differentiate between routine insider transactions and informative transactions?
Sales of freshly-exercised stock options and insider sales conducted under pre-arranged trading plans represent a high portion of the routine kind of insider trading. And why are these two kinds of insider trading considered routine? Because the insider selling related to freshly-exercised stock options or pre-arranged trading plans is mainly driven by diversification or liquidity needs. Hence, Insider Monkey believes that spur-of-the-moment insider transactions represent a set of information-rich trades that contain much more information for prices than routine transactions. Presumably, the only reason corporate insiders use their capital to purchase shares in their own companies is that they expect to generate good trading profits, either because they find the shares undervalued or because they anticipate great times ahead for their companies. That said, the following article will lay out a list of five companies that recently registered noteworthy insider transactions.
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).
Provider of Sand-Based Proppant Solutions Registers Massive Insider Purchase
Fairmount Santrol Holdings Inc. (NYSE:FMSA) registered an extremely voluminous insider purchase earlier this week, the kind of insider buying investors should keep a close eye on. Charles D. Fowler, current Chairman of the Executive Committee of the company’s Board and former CEO, snapped up 1.67 million shares on Tuesday for $5.95 each, lifting his direct ownership stake to 1.71 million shares. Mr. Fowler also holds an indirect ownership stake of 10.13 million shares.
The provider of sand-based proppant solutions has seen the value of its shares skyrocket by 182% since the beginning of 2016, but Mr. Fowler keeps buying shares. Just recently, analysts at Piper Jaffray upgraded Fairmount Santrol Holdings Inc. (NYSE:FMSA) to ‘Overweight’ from ‘Neutral’ and reiterated their $8 price target after the company announced a 25 million-share offering that generated roughly $161 million in net proceeds. Piper Jaffrey cited the share offering as the primary reason behind the upgrade, with the offering being viewed as a deleveraging event. Israel Englander’s Millennium Management LLC held 1.54 million shares of Fairmount Santrol Holdings Inc. (NYSE:FMSA) at the end of March.
The next two pages of this insider trading article will discuss noteworthy insider transactions registered at four other companies.