One Prison Operator and Two Retailers Register Noteworthy Insider Selling

Past research shows that companies with high earnings multiples and insider selling tend to underperform stock market benchmarks by a wide margin. Similarly, extensive research also finds evidence that companies witnessing heavy insider selling underperform companies with insider buying. It is true that corporate insiders can sell shares for a variety of reasons, most of which may not be related to their companies’ current developments or future performance, but monitoring insider selling activity can help retail investors in avoiding bad stocks. Retail investors should bear in mind that heavy insider selling or even massive clusters of insider selling do not reveal any short-selling opportunities. Put it differently, the insider selling metric does not always indicate that a company will underperform peers or its share price will drop in the months or years ahead. Instead, investors should mostly interpret insider selling as a sign of “fair” valuation, implying that companies with strong insider selling may not enjoy the same exceptional stock performance as companies with insider buying. Insider Monkey processed dozens of Form 4 filings recently submitted with the SEC and pinpointed three companies with notable insider selling, so let’s take a brief look at the three companies in question.

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To start with, Chico’s FAS Inc. (NYSE:CHS) had one of its executives sell a large block of shares last week. Dona Noce Colaco, Brand President White House/Black Market, sold 54,988 shares on Thursday at prices that ranged from $12.55 to $13.05 per share, cutting her direct ownership to 178,745 shares. She also possesses an indirect ownership stake of 195,468 shares, which is held through a trust fund. The shares of the women’s clothing retailer have advanced 20% since the beginning of 2016, after experiencing a terrible 2015 in terms of stock performance. Thus, the recent surge in the company’s stock price might have created exit points for both insiders and investors willing to diversify their holdings.

The retailer’s portfolio of brands includes Chico’s, White House Black Market (WHBM), and Soma. Chico’s FAS Inc. (NYSE:CHS) operates slightly more than 1,500 stores in the United States, Puerto Rico, the U.S. Virgin Islands and Canada, as well as sells merchandise via 37 franchise locations in Mexico. Chico’s FAS previously operated a fourth brand, called Boston Proper, but the company completed the sale of the Boston Proper direct-to-consumer business in early 2016. The company’s net sales for fiscal 2015 that ended January 30 totaled $2.64 billion, decreasing 1.2% year-on-year. The decrease mainly reflects a 1.5% decrease in comparable sales (excluding Boston Proper and international sales) and a decline in Boston Proper sales. The company’s management anticipates flat to slightly negative growth in comparable sales for fiscal 2016, with higher odds of positive growth in the second half of the year. It should also be noted that the Boston Proper sale is expected to drive up fiscal 2016 operating margin by roughly 100 basis points and earnings per share by around $0.09. A number of 22 hedge funds tracked by Insider Monkey were invested in Chico’s FAS at the end of December, which aggregately stockpiled nearly 15% of the company’s shares. Jim Simons’ Renaissance Technologies increased its exposure to Chico’s FAS Inc. (NYSE:CHS) by 22% during the December quarter, ending 2015 with 4.79 million shares.

Let’s head to the next pages of this insider trading article, where we examine the insider selling registered at Corrections Corp Of America (NYSE:CXW) and Express Inc. (NYSE:EXPR).

Moving on the next topic of discussion, Corrections Corp Of America (NYSE:CXW) had three different executives offload shares this March. So let’s take a quick look at the most recent insider selling activity. To begin with, Chairman John D. Ferguson disposed of 60,000 shares on Monday and Tuesday at prices that fell between $32.02 and $32.28 per share, of which 30,000 units were held through Calco Investments LLC and the remaining shares were held via Ferguson Financial LLC. After the recent sell-off, each of the two entities continues to hold a 50,573 share-block. Mr. Ferguson also holds a direct ownership stake of 14,915 shares. On March 15 and 16, Steven E. Groom, Executive Vice President and General Counsel, unloaded 58,150 shares at prices ranging from $30.89 to $31.10 per unit, cutting his holding to 19,873 shares.

Corrections Corp Of America is the largest owner of privatized correctional and detention facilities in the United States, owning 66 correctional and detention facilities and managing an additional 11 facilities owned by government partners as of the end of 2015. The prison operator activates as a real estate investment trust, so income-seeking investors may consider this REIT as a possible investment opportunity. The REIT derives revenue from operating and managing correctional and detention facilities, renting from facilities leased to third-party operators, and revenue from inmate transportation services. The REIT’s 2015 total revenue was $1.79 billion, which increased $143.1 million or 8.9% year-on-year. The increase was mainly driven by an increase of 14.5% in average revenue per compensated man-day, which was offset by a decrease in the average daily compensated population. The drop in average compensated population was primarily due to the expiration of the company’s contract with the Federal Bureau of Prisons at its Northeast Ohio Correctional Center and a drop in California inmates in out-of-state facilities. The REIT pays out an annualized dividend of $2.16 per share, which equates to a current dividend yield of 6.57%. Nonetheless, the REIT’s payout ratio above 100% might suggest that the dividend payments are not entirely sustainable. The number of money managers from our system with stakes in the prison operator climbed to 17 from 15 during the December quarter. Ric Dillon’s Diamond Hill Capital reported an ownership of 1.17 million shares in Corrections Corp Of America (NYSE:CXW) through the fund’s latest 13F.

Let’s now focus our attention on the insider selling witnessed at Express Inc. (NYSE:EXPR). Non-Executive Chairman Michael A. Weiss, who retired as Chief Executive Officer of the Columbus-based fashion retailer in January 2015, sold 50,000 shares last Tuesday at prices varying from $21.00 and $21.13 per share, cutting his direct ownership stake to 1.41 million shares. Mr. Weiss also holds an indirect ownership stake of 334,729 shares through a grantor retained annuity trust, called the Michael A. Weiss Trust Agreement Gamma #5.

Express is a specialty apparel and accessories retailer that offers both women’s and men’s merchandise through more than 650 retail and factory outlet stores. The specialty retail apparel company has seen its shares advance by 22% since the beginning of the year, which probably explains Mr. Weiss’ decision to cash out a portion of his holding. Express generated net sales of $2.35 billion for fiscal 2015 that ended January 30, which increased from $2.17 billion in fiscal 2014. The company’s comparable sales grew 6% year-on-year, while diluted earnings per share increased to $1.38 from $0.81 reported for fiscal 2014. The management of Express anticipates fiscal 2016 comparable sales to grow by a low-single-digit percentage, and expects diluted EPS in the range of $1.47-to-$1.62. Shares of Express are currently trading around 11.6-times expected earnings, versus the forward P/E ratio of 20.2 for the Apparel Retail sector. The smart money sentiment towards the fashion retailer declined significantly in the fourth quarter of 2015, as the number of funds invested in the company dropped to 25 from 34 quarter-on-quarter. Ken Griffin’s Citadel Advisors LLC significantly boosted its stake in Express Inc. (NYSE:EXPR) during the December quarter, ending 2015 with nearly 657,000 shares.

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