Investors who place value on insider trading activity often focus on major one-time transactions. These can come in the form of a large dollar amount, or a trade placed by a prominent company executive or institution.
The approach certainly has its merits, but there is another way to derive value from insider trading. It involves taking a broader view of what an insider has done over an extended period of time, such as 90 days. This helps identify significant insider activity that isn’t of the big splash variety, but in aggregate, is equally if not more informative.
The most active insiders tend to be company CEOs, chairman, or large investment firms. When they repeatedly sell, it typically corresponds with a preset trading plan. Other times, large positions are unwound over time to not cause volatile price swings. On the buy side, active insiders similarly build positions over time to get better pricing and not move the market. Trading plans that prescribe regular buying are also common.
Let’s look a few recent examples of active insiders and what investors can glean from their actions.
Why is Salesforce.com’s CEO Selling Shares?
Over the last 90 days, Salesforce.com (NYSE: CRM) CEO Marc Benioff has placed 35 sell transactions. The trades have repeatedly been in 20,000 share increments, a pattern that has persisted since mid-June. While the roughly $184 million of total selling on the surface seems alarming, it should not.
That’s because Mr. Benioff owns a massive amount of Salesforce stock and has been a persistent seller for years. Even after executing a ton of sells since June 2014, he still holds nearly 29 million shares, or 3% of shares outstanding.
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This is simply a case of a company founder, chairman, and CEO who has continued to accumulate large blocks of common shares and options as part of a compensation package. When the securities are granted or vested, Mr. Benioff regularly liquidates them on the open market to limit his exposure and diversify his personal investments. Investors should not interpret this type of selling as bearish insider sentiment.
The CEO’s ongoing selling activity certainly hasn’t held back the stock. Following a 4-for-1 split in 2013, the software leader has staged one of the most remarkable runs in market history and appears to be closing in on $300 per share.
Are Hedge Funds Buying Brightcove Stock?
A far smaller technology company, Brightcove (NASDAQ: BCOV), suffered a sharp descent after finally returning its post-IPO high from a decade ago. The stock has stabilized in recent weeks with an active insider having a big influence.
Edenbook Capital has bought Brightcove shares on 10 occasions over the last 90 days. In total, the $1.77 million investment is a major vote of confidence from a major shareholder that investors should note.
The upstate NY-based hedge fund began accumulating Brightcove stock on August 5th, soon after it gapped lower in heavy trading volume. That move was precipitated by a disappointing second-quarter earnings report in which the cloud-based video platform provider beat the Street but offered a soft full-year outlook.
Edenbrook has since pounced on the selloff seemingly thinking the market overreacted. Its most recent buy came on October 4th with Brightcove trading around $11 and brought its position to more than 4.58 million shares. The heavyweight institutional investor currently has an 11% stake in Brightcove meaning it can have a significant impact on the stock’s movement. The company will be looking to win back investors on October 27th when it reports third-quarter results.
Are Cumberland Pharmaceuticals Insiders Buying?
Cumberland Pharmaceuticals (NASDAQ: CPIX) is a drug manufacturer that has seen some good buying activity over the last few months. Although the dollar amounts have been relatively small, it is the streak of buying that should grab micro-cap investors’ attention. It has been more than seven months since an insider sold Cumberland shares.
Granted, selling into the stock’s recent downturn wouldn’t appear to make much sense. Cumberland is down 8% year-to-date after after sliding in each of the three previous years. Chairman and CEO A.J. Kazimi’s recent involvement in the stock, however, could signal a turnaround is forthcoming.
On August 2nd, Mr. Kazimi began accumulating 15 Cumberland shares daily as a part of an established trading plan. Considering this is a penny stock trading around $3 per share, the buys are akin to even the most budget-conscious retail investors. But what makes them significant is the fact that the executive already owns over 5.7 million shares.
Mr. Kazimi founded the company back in 1999 so if anyone is in tune with the company’s growth prospects and when its stock may be undervalued, it is him. To buy more of the beaten-up stock when it is presumably already a big portion of his net worth is a meaningful statement regardless of the share amount.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Cumberland Pharmaceuticals (CPIX) | $1.06 | flat | N/A | -1.38 | N/A | N/A |
| Brightcove (BCOV) | $4.32 | +35.4% | N/A | -20.57 | Moderate Buy | $3.98 |
| Salesforce (CRM) | $339.12 | -0.8% | 0.47% | 58.98 | Moderate Buy | $339.66 |
