Most investors and insider trading watchers believe that insider selling is not particularly informative or useful given the increased usage of stock-option-based compensation, which has distorted insider trading data, as corporate officers and directors sell shares in greater quantities for mere liquidity purposes on many occasions. However, there is some insider selling that may prove informative to the investment community. Precisely, insider selling activity that is not related to freshly-exercised stock options or pre-arranged trading plans may still offer valuable insight regarding an insider’s take on the current valuation of their companies. Past research suggests that companies with heavy insider selling tend to underperform companies with insider buying, so it does make sense to keep track of insider selling as well. With that in mind, the following article will examine the insider selling activity witnessed at several companies, one of which had multiple insiders unload shares within a short period of time recently.
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Producer of Factory-built Homes Sees CEO Unload Shares
The man in charge of Cavco Industries Inc. (NASDAQ:CVCO) sold shares this past week. President and Chief Executive Officer Joseph H. Stegmayer sold 11,000 shares on Thursday and 9,000 shares on Friday at a weighted average sale price of $89.90, cutting his ownership to 502,428 shares. The company’s business involves designing and producing factory-built homes marketed under the Cavco Homes, Fleetwood Homes, Palm Harbor Homes, Fairmont Homes, and Chariot Eagle brand names. In fact, the company conducts its business operations through two segments: factory-build housing, and financial services, the latter of which involves manufactured housing consumer finance and insurance. Cavco Industries operates 45 company-owned retail stores across the United States.
Fresh data revealed by the Manufactured Housing Institute (MHI) shows that industry home shipments continue to increase, climbing by 8.8% year-over-year during the first 11 months of 2015. A total of 64,000 HUD code-manufactured homes were shipped in 2014, up from 60,000 homes shipped in 2013. Despite the improvement in manufactured home shipments in recent years, the overall manufactured housing industry and Cavco Industries in particular continue to operate at relatively weak production and shipment levels.
Shares of Cavco Industries Inc. (NASDAQ:CVCO) have gained 96% over the past five years and are up by 33% in the past year, which seems to reflect the positive trend in the manufactured housing industry. The company’s net revenue for the nine months that ended December 26 reached $535.06 million, up from $425.41 million reported for the same period of the prior year. Net revenue from the factory-built housing segment increased by 27.4% year-over-year, mainly due to businesses acquired in the first quarter of fiscal year 2016, as well as sales growth registered by the company’s pre-existing factory-built housing operations. Meanwhile, financial services segment revenue increased by 9.4% year-over-year as a result of additional insurance policies in force and loans serviced.
Cavco shares are currently trading at a forward P/E multiple of 22.6, which is significantly above the forward P/E ratio of 11.7 for the homebuilding industry and the ratio of 18.8 for the NASDAQ 100 Index. Earlier this year, analysts at Sidoti initiated coverage on Cavco Industries with a ‘Buy’ rating. The number of hedge funds tracked by Insider Monkey with stakes in the producer of factory-built homes increased to 12 from eight during the December quarter, with those 12 funds holding nearly 21% of the company’s outstanding common stock. Martin Whitman’s Third Avenue Management owned 957,501 shares of Cavco Industries Inc. (NASDAQ:CVCO) at the end of December.