Corporate insiders, namely executives and Board members, are usually privy to a great deal of up-to-date information about current developments or future prospects at their companies. Hence, some investors follow insider trading behavior in hopes of gaining additional insights about certain companies and their market value.
Nonetheless, the question of whether corporate insiders are making profitable trades still remains unanswered to many investors. Recent studies suggest that corporate insiders tend to act as contrarian investors by buying shares in their own companies when those shares are seemingly undervalued by Mr. Market. Put it differently, insiders mostly buy shares when most investors are dumping them. In fact, insiders tend to buy shares at low price-earnings ratios or when the value of those shares goes below their book value. Let’s put it this way, insider buying metrics point to battered and struggling companies that are poised to recover in the months ahead. Meanwhile, Insider Monkey processed the majority of Form 4 filings submitted with the SEC on Monday and identified three companies with noteworthy insider buying.
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).
Amazon Supplier Sees Board Member Buy Massive Block of Shares
Just several trading sessions ago, Applied Optoelectronics Inc. (NASDAQ:AAOI) registered the most valuable insider purchase of 2016. Board member Alan D. Moore purchased 105,000 shares on Thursday at prices varying from $9.80 to $10.16 per share. After the recent sizable purchase, the Board member currently holds an ownership stake of 222,542 shares.
Applied Optoelectronics Inc. (NASDAQ:AAOI) develops fiber-optic networking products for three networking end-markets that include Internet data centers, cable television, and fiber-to-the-home. Retail giant Amazon.com Inc. (NASDAQ:AMZN) accounted for nearly 53% of the company’s top line last year, with some analysts viewing the growth of Amazon Web Services as an appropriate proxy for assessing the giant’s optical equipment demand. Applied Optoelectronics has seen its market value plunge by 40% since the beginning of 2016, partially due to disappointing top- and bottom-line figures for the first quarter. The stock is priced at around 9.0-times expected earnings, significantly below the forward P/E multiple of 15.8 for the technology sector.
There were 15 hedge funds from our database with equity positions in the provider of fiber-optic networking products at the end of March, as compared to 14 registered at the end of December. The 15 asset managers amassed nearly 25% of the company’s total number of outstanding shares. Philip Hempleman’s Ardsley Partners was the owner of 1.21 million shares of Applied Optoelectronics Inc. (NASDAQ:AAOI) at the end of the first quarter.
Let’s head to the second page of this insider trading article, where we will discuss the insider buying registered at two separate companies.
Provider of Funeral and Cemetery Services Has President Buy Shares
Carriage Services Inc. (NYSE:CSV) had one of its most influential executives buy shares this past week. David J. DeCarlo, President and Vice Chairman of the company’s Board, snapped up 10,000 shares on Friday at a price tag of $22.51 per share, lifting his direct ownership stake to 106,047 shares. Mr. DeCarlo also holds an indirect ownership stake of 60,329 shares, which is held in the Peggy J DeCarlo 2012 Irrevocable Trust.
The $374 million-company operates two primary businesses, namely funeral home operations and cemetery operations. Carriage Services Inc. (NYSE:CSV)’s stock has lost 6% of its value since the start of 2016. The company’s total revenue for the first three months of 2016 was $63.33 million, up from $63.25 million reported a year ago. The increase in revenues generated from the cemetery segment more than offset the decrease in revenues from the funeral home segment. The latter segment’s same store operating revenues decreased by 4.5% year-over-year due to lower same store contract volumes, partially offset by higher average revenue per contract.
In late May, the boardroom of the provider of funeral and cemetery services approved an increase in its quarterly cash dividend to $0.05 per share from $0.025 per share, with latest dividend yielding 0.89% annually. The number of asset managers followed by Insider Monkey with long positions in Carriage Services dropped to nine from ten during the March quarter. Jim Simons’ Renaissance Technologies LLC had 757,740 shares of Carriage Services Inc. (NYSE:CSV) in its equity portfolio at the end of the March quarter.
Provider of Infusion Solutions Witnesses Cluster of Insider Buying
BioScrip Inc. (NASDAQ:BIOS) registered a cluster of insider buying this past week, which involved four different insiders. To start with, Board member Michael G. Bronfein acquired a new stake of 80,000 shares on Friday at a weighted average cost of $2.50. Michael Goldstein, member of the company’s boardroom since May 2015, purchased a new 25,000-share stake on the same day at prices ranging from $2.48 to $2.50 per share. More importantly, R. Carter Pate, Chairman of the company’s Board, bought 25,000 shares on Friday for $2.50 each, lifting his ownership to 30,000 shares. Last but certainly not least, Director David W. Golding acquired 12,500 shares on the last trading session of last week at prices that fell between $2.40 and $2.50 per share, which boosted his holding to 42,500 shares.
The low-priced provider of infusion solutions has seen its market capitalization jump by 52% since the start of 2016, but Board members keep buying shares. Earlier this month, BioScrip Inc. (NASDAQ:BIOS) announced it was acquiring privately-held provider of home infusion and home nursing products and services, called HS Infusion Holdings Inc., for $85 million. Meanwhile, the acquirer has been implementing a financial improvement plan introduced in August 2015, which has already succeeded in reducing costs, improving margins and reorganize the business. The company anticipates to realize annualized net cost savings in the range of $35.0 million-to-$40.0 million by August of this year.
There were 13 hedge funds monitored by our team with stakes in BioScrip at the end of March, which accumulated a whopping 38% of the company’s outstanding common stock. Stephen Dubois’s Camber Capital Management reported ownership of 6.18 million shares of BioScrip Inc. (NASDAQ:BIOS) in its latest 13F.