Insiders Are Buying These 3 Stocks; Should You Follow Their Lead?

Insider buying is one of the key metrics individual investors should monitor no matter where the market is heading. At the end of the day, insiders have a much better understanding of their companies’ businesses and future prospects that any of us, so their stock purchases amid high market volatility definitely suggests confidence in the long-term prospects of the companies in question. That said, the Insider Monkey team pinned down three companies with recent insider buying activity and this article will discuss the recent performance of those companies, along with their insider buying.

Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35%-to-45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. 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 the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned 102% over the ensuing 38 months, outperforming the S&P 500 Index by more than 53 percentage points (read more details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.

3D Systems Corporation (NYSE:DDD) has witnessed heavy insider buying activity so far this week. Director G. Walter Loewenbaum II purchased 70,400 this week at prices ranging from $8.90-to-$9.17 per share, lifting his direct ownership stake to 984,810 shares. The Director also owns indirectly several hundreds of thousands of shares through trust funds and other entities. The provider of 13D digital design and fabrication solutions has been struggling this year, as the 3D industry experiences sluggish demand for 3D printing technology. Just recently, 3D Systems Corporation (NYSE:DDD) reported consolidated revenue of $151.6 million for the third quarter, which was down 9.2% or $15.4 million year-on-year. Meanwhile, its product revenue decreased 27.4% or $20.0 million year-over-year to $52.9 million, mainly due to lower sales of 3D printers. Even so, the 3D printing industry is anticipated to have a bright future ahead, as analysts expect the 3D market to be worth $17.2 billion by 2020. However, the competition in the industry has been intensifying lately, so 13D Systems is believed to have a rough year in 2016. Let’s not forget to mention that the stock has lost a whopping 72% so far in 2015. 3D Systems lost its charm among the hedge funds tracked by Insider Monkey, as the number of smart money investors with stakes in the company declined to 12 from 17 quarter-on-quarter. Philippe Laffont’s Coatue Management holds a 4.06 million-share position in 3D Systems Corporation (NYSE:DDD) as of September 30.

Let’s head to the next page of this daily insider trading article, where the insider buying witnessed at Sportsman’s Warehouse Holdings Inc. (NASDAQ:SPWH) and Penn National Gaming Inc. (NASDAQ:PENN) is closely examined.

We can now refocus our full attention to the insider buying at Sportsman’s Warehouse Holdings Inc. (NASDAQ:SPWH). Director Kay L. Toolson bought 10,000 shares on Tuesday at $11.3 apiece and currently holds an ownership stake of 45,982, which includes 3,490 restricted stock units. The shares of the outdoor sporting goods retailer have advanced 56% since the beginning of the year, but the Director’s purchase points to more upside in the future. However, the company’s price-to-earnings ratio of 24.83, which is slightly above the average of 23.18 for the companies included in the S&P 500 Index, does not necessarily suggest substantial upside. Sportsman’s Warehouse currently operates 64 stores in 19 states, after opening nine stores so far in 2015. The company’s third-quarter net sales added up to $199.7 million, which increased $17.2 million or 9.4% year-over-year. This growth is mainly attributable to the sales generated from the freshly-opened stores, while the company’s same store sales for the third quarter remained flat year-over-year. Sportsman’s Warehouse received more attention from the hedge fund industry during the third quarter, as the number of top money managers invested in the company grew to 15 from eight during the three-month period. Ken Griffin’s Citadel Advisors LLC purchased a new stake of 377,852 shares in Sportsman’s Warehouse Holdings Inc. (NASDAQ:SPWH) during the September quarter.

Lastly, Penn National Gaming Inc. (NASDAQ:PENN) had one of its executives purchase stock this week. Executive Vice President and Chief Development Officer William J. Fair reported acquiring a 4,000-share stake on Monday at a weighted average price of $16.00. According to a freshly-submitted filing, the owner and manager of gaming and pari-mutuel properties is changing the classification of its master lease with Gaming and Leisure Properties Inc. (NASDAQ:GLPI) from an operating lease to a financial transaction. As a result, the company is set to restate its yearly and quarterly earnings reports starting from 2013. The market reacted negatively to the announcement of this reclassification, but it remains to see to what extend the lease’s reclassification impacts Penn’s financial results. Meanwhile, the steady-improving regional gaming trends were reflected in the company’s financial results for the third quarter. Penn National reported revenues of $739.3 million for the quarter, compared with $645.9 million reported last year. Shares of Penn are 15% in the green this year and they can go even higher should the worries around the aforementioned reclassification fade away. 35 hedge funds from our database had positions in the company at the end of the third quarter, amassing 35.00% of the company’s outstanding common stock. Balyasny Asset Management, founded by Dmitry Balyasny, cut its exposure to Penn National Gaming Inc. (NASDAQ:PENN) by 10% during the June-to-September period, ending the quarter with 7.03 million shares.

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