Last week’s dollar volume of all insider purchases almost doubled week-over-week, whereas the volume of insider selling decreased quite meaningfully relative to the volume of selling recorded for the previous week. While a decrease in the ratio of insider selling over insider buying might represent good news for the investment community, the aggregate insider trading behavior is not as informative as the insider trading activity registered at individual companies. The standard rule of thumb is that insider buying indicates that corporate insiders believe their own companies’ shares are undervalued. Similarly, heavy insider selling is generally perceived as a bearish signal, but this type of activity should be interpreted with caution. The main issue with insider selling is that directors and executives can sell shares for a wide array of reasons that may not necessarily be related to the financial valuations or future prospects of their companies. That being said, the following insider trading article will discuss several noteworthy insider trading transactions reported with the SEC on Friday.
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).
Reed’s Had Three Influential Executives Purchase Shares Last Week
Reed’s Inc. (NYSEMKT:REED)’s Senior Vice President of Sales and Marketing, Neal Cohane, purchased 10,000 shares on Thursday for an aggregate price of $39,000, lifting his overall holding to 158,573 shares. Daniel V. Miles, Chief Financial Officer since May 2015, acquired a new stake of 10,000 shares on the same day for $3.90 each. Most notably, Founder and Chief Executive Officer of Reed’s, Christopher J. Reed, snapped up a 10,000-share block on Thursday at the same $3.90 per share price tag. After the recent purchase, Mr. Reed currently holds a direct ownership stake of 3.22 million shares.
The manufacturer and seller of beverages, candies and other ginger-related products has seen its market value drop by 27% since the start of the year. Reed’s Inc. (NYSEMKT:REED)’s net sales for the first quarter of 2016 were $10.00 million, down from $10.67 million reported a year earlier. The decrease was mainly driven by increased promotional costs and lower sales volume. Meanwhile, candy sales continued to be impacted by a California lawsuit that required the company to find alternative suppliers. Jim Simons’ Renaissance Technologies LLC owns 52,800 shares of Reed’s Inc. (NYSEMKT:REED) as of March 31.
On the next two pages of this insider trading article we’ll discuss the insider trading transactions registered at four other companies last week.