CEOs Are Piling Up More Shares of These Three Companies

Most corporate insiders possess all the knowledge, characteristics, and skills that could be used to describe the “value-oriented” type of investors. First, insiders have a better understanding of their companies and industries than any of us. Second, the history shows that insiders are not afraid of acting as contrarian investors, which usually involves buying low and selling high. And third, they do have the necessary capital to take advantage of opportunities when they arrive. Nonetheless, one should still bear in mind that insiders are business people, not value-oriented investors. Of course, they do have a better idea of where their company’s business is heading, but they are not overly sophisticated investors and they are not too good at finding appropriate entry and exit points (insiders are widely-known for buying too early and selling too soon). This is why retail investors tracking insider buying activity should rather focus on the long term performance of insiders’ purchases. Indeed, Chief Executives Officers and other top executives tend to be the most informed individuals in any company, which is why their moves should be paid particular attention. For that reason, the following article will lay out a list of three companies that saw their most influential insiders purchase shares this week.

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).

Let’s begin with the company that registered the highest dollar volume of insider buying among the three companies discussed in this article. Thomas D. Ebling, Chief Executive Officer and President of Demandware Inc. (NYSE:DWRE), purchased 30,000 shares on Wednesday at prices that ranged from $34.81 to $35.00 per share, boosting his direct ownership stake to 198,070 shares. His spouse also holds a stake of 257,524 shares.

Demandware Inc. (NYSE:DWRE) is a provider of enterprise-class cloud commerce solutions for retailers and branded manufacturers, which includes solutions for digital commerce and point of sale. The main pillar of the company’s business model relies on its technology platform called the Demandware Commerce Cloud, which allows customers to reach their consumers across all digital points available, such as eCommerce sites, mobile applications, and others. Demandware generates most of its revenue from subscriptions to its Demandware Commerce Cloud and related services, which are usually sold through both a direct sales force and indirect channels. The total number of eCommerce customer sites using the company’s solutions represents the best indicator of how the company’s business has been evolving over time. Demandware’s eCommerce customers were operating 1,506 sites at the end of 2015, significantly more than 1,143 sites operated at the end of 2014 and 820 sites at the end of 2013. The company’s 2015 subscription revenue, which accounted for 85% of total revenue, grew by $55.1 million or 37.8% year-on-year to $200.95 million. The increase was mainly driven by revenue from new eCommerce customers and an increase in revenue from existing customers. At the same time, the increase in revenue derived from existing customers was mainly attributable to higher revenues from existing sites and the launch of additional sites. Meanwhile, shares of Demandware are down 41% in the past 12 months, probably because investors had anticipated the company to grow at higher rates. The digital commerce solutions provider anticipates 2016 subscription revenue in the range of $260.0 million-to-$270 million, which appears to have disappointed investors. Ken Griffin’s Citadel Advisors  reported owning 1.22 million shares of Demandware Inc. (NYSE:DWRE) through its latest 13F filing.

The second and third pages of this article discuss the insider buying activity witnessed at Graham Holdings Co (NYSE:GHC) and Altisource Portfolio Solutions S.A. (NASDAQ:ASPS).

Graham Holdings Co (NYSE:GHC) also had its most influential insider purchase a sizable block of shares this week. President and Chief Executive Officer Timothy J. O’Shaughnessy reported purchasing 1,100 Class B shares on Wednesday at a cost of $463.61 per share, lifting his stake to 8,892 shares. The CEO’s spouse holds a stake of 2,782 Class B shares. Mr. O’Shaughnessy also holds 900 Class B shares indirectly through a trust fund for spouse, as well as 3,800 shares through a trust for spouse and children.

Graham Holdings mainly operates as a diversified education and media company. The company’s Kaplan subsidiary offers a range of educational services, while its media operations include the ownership and operation of five television broadcast stations, as well as Slate and Foreign Policy magazines. Graham Holdings also operates two home health and hospice providers, three industrial companies and marketing solutions provider Social Code LLC, all of which comprise the Other Businesses segment. The company’s 2015 revenue totaled $2.59 billion, which decreased 6% year-on-year. The decline in the company’s top-line figure was mainly driven by the weakening performance of the education division and the television broadcasting division, which was in turn offset by strengthening performance in other businesses. To be more detailed, education revenue decreased 11% year-on-year in 2015 and advertising revenue dropped 9%, whereas other revenues grew 41% year-over-year. The increase in other revenues was mainly attributable to new businesses acquired in 2015 and 2014. Graham Holdings has seen the value of its stock decline 26% in the past 52 weeks, but the stock has been attempting to rebound throughout the first months of this year. The smart money sentiment towards Graham Holdings declined significantly during the fourth quarter of 2015, as funds with positions in the company dropped to 19 from 28. Those 19 hedge funds amassed almost 22% of the company’s total number of shares. Mason Hawkins’ Southeastern Asset Management had 703,052 shares of Graham Holdings Co (NYSE:GHC) in its portfolio at the end of the December quarter.

Last but not least, Altisource Portfolio Solutions S.A. (NASDAQ:ASPS)’s top executive also made a relatively sizable purchase this week. Chief Executive Officer William B. Shepro snapped up two blocks of shares on Tuesday, consisting of 6,100 shares and 1,100 shares, at a weighted average price of $24.43. All these shares are held through a trust fund called William B. Shepro Revocable Trust, which currently owns 99,298 shares. The CEO also holds 56,600 restricted shares of common stock, which are scheduled to vest in three equal installments in April 2017, April 2018 and April 2019. General Counsel Gregory J. Ritts bought 500 shares on Monday at a price of $24.14 per share, enlarging his holding to 6,100 shares. The freshly-upped stake includes 5,600 restricted shares of ASPS’s common stock.

Altisource Portfolio Solutions is a marketplace and transaction solutions provider for the real estate, mortgage and consumer debt industries. The company conducts its business operations through three reportable segments: the Mortgage Services segment, which offers services that span the mortgage and real estate lifecycle; the Financial Services segment, which provides collection and customer relationship management services; and the Technology Services segment, which offers a wide array of software, data analytics, and infrastructure management services. Altisource Portfolio Solutions recognized service revenue of $940.92 million for 2015, which increased from $938.7 million for 2014 and $662.1 million for 2013. The increase was mainly driven by revenue expansion in the asset management services businesses due to growth in the number of non-Ocwen and Ocwen (Ocwen Financial Corporation is the largest customer of Altisource) real estate owned properties sold on real estate portal Hubzu. Altisource was also selected by two top ten banks to provide services for their portfolios during 2015, which might drive up the company’s top-line results in the quarters and years ahead. Shares of Altisource are up 69% in the past year, but they have plummeted 14% since the beginning of 2016. The stock is priced around 6.2-times expected earnings, versus the forward P/E of 17.6 for the S&P 500. Leon Cooperman’s Omega Advisors was one of the 11 hedge funds invested in Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) at the end of December 2015, holding a stake of 1.66 million shares as of December 31.

Disclosure: None