Executive officers and other key executives at most publicly traded companies are required to own shares of their companies worth at least three times their base salary within a specified period of hire or promotion (usually five years). The so-called ownership guidelines are aimed at linking the interests of executives and shareholders. Hence, investors should keep in mind this aspect when stumbling upon insider buying conducted by freshly-appointed employees or Board members.
It is generally believed that insider trading in smaller companies is much more informative than in larger ones. The “correct” price of a security should reflect each piece of material and non-material information related to that security. However, as less analysts and research hubs analyze and discuss smaller companies, it is likely that these companies are priced somewhat less inaccurately than larger companies. Assuming corporate insiders have a good feel for what the “correct” share price of their company is, observing insider buying at small companies may result in strong returns for investors. With that in mind, this article will discuss some insider buying recently registered at several small and relatively unknown companies.
Through extensive research, we have determined that the due diligence that the investors in our database employ, as well as their long-term focus makes them perfect targets to emulate. However, the results of our analysis have also shown that the small-cap picks of these funds can generate much better returns, with the 15 most popular small-cap stocks beating the market by an average of 95 basis points per month (read more details here).
This Spirits Company’s CEO Continues Buying up Shares
Castle Brands Inc. (NYSEMKT:ROX) has observed its most informed and powerful executive buy shares constantly over the past several months. Richard J. Lampen, President and Chief Executive Officer since October 2008, snatched up 120,000 shares on Monday, 72,300 shares on Tuesday, and 50,000 shares on Wednesday at prices ranging from $0.71 to $0.76 per share. Mr. Lampen also purchased a block of 20,200 shares on Friday for $0.72 each. After the recent purchases, Mr. Lampen currently owns 1.54 million shares.
The developer and marketer of premium and super-premium branded spirits has lost 41% of its market value since the beginning of 2016. Castle Brands Inc. (NYSEMKT:ROX) reported net sales of $72.22 million for fiscal 2016 that ended March 31, up from $57.46 million in fiscal 2015 and $48.14 million in fiscal 2014. However, the spirits company appears to be on track to become profitable in the following one or two years, as the company’s net loss declined to $1.71 million in fiscal 2016 from $3.47 million in fiscal 2015 and $7.97 million in fiscal 2014.
The company’s top line increased in fiscal 2016 due to sales growth of its Jefferson’s portfolio and its Goslings rum and Goslings Stormy Ginger Beer, partially offset by lower sales of vodka. Castle Brands anticipates sustained growth of Goslings Stormy Ginger beer in the near future due to the popularity of cocktails containing ginger beer and Goslings brand awareness. There were a mere four hedge funds followed by Insider Monkey invested in the spirits company at the end of March. Murray Stahl’s Horizon Asset Management owned 106,000 shares of Castle Brands Inc. (NYSEMKT:ROX) at the end of March.
The second page of this article will discuss the insider buying registered at two other companies.