Any investor who has spent considerable time assessing the stock market knows that there is no approach that works every time, regardless of whether it is based on fundamentals or technicals. Nevertheless, there are some strategies, which, if followed with discipline over a long period of time, produces returns that are better than the returns generated by the overall market or indices. Among them is tracking insider activity, since insiders of a company generally have access to more information than other investors. Keeping that in mind, let’s proceed to dissecting three stocks, which have seen insider selling recently: ChannelAdvisor Corp (NYSE:ECOM), Endurance Specialty Holdings Ltd. (NYSE:ENH), and RadNet Inc. (NASDAQ:RDNT).
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read more details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 118% and beating the market by more than 60 percentage points.
Let’s start with North Carolina-based Software as a Service (SaaS) company, ChannelAdvisor Corp (NYSE:ECOM), in which Executive Chairman Scot M. Wingo sold 35,000 shares in multiple transactions between August 31 and September 2 at prices ranging from $11.21 to $11.37 per unit. After these transactions, Mr. Wingo owns almost 1.28 million shares of ChannelAdvisor Corp (NYSE:ECOM). The company’s stock hasn’t been able to rebound ever since it dropped by 50% in mid-January on the back of the company announcing that its revenues for the fourth quarter of 2014 will fall short of expectations and is currently trading down 47.5% year-to-date. The loss of $0.10 per share and revenue of $24.20 million it reported for the second quarter of 2015, beat analysts’ estimates of a loss of $0.29 per share on revenue of $21.69 million. During the April-June period, Billionaire David E. Shaw‘s D.E. Shaw reduced its stake in ChannelAdvisor Corp (NYSE:ECOM) by 34% to 105,209 shares.
Moving on to Endurance Specialty Holdings Ltd. (NYSE:ENH), where Chief Risk Officer, Joan deLemps, disposed of 6,938 shares at $62.45 apiece on September 2, bringing her total holding down to 36,155 shares. Endurance Specialty Holdings Ltd. (NYSE:ENH) is engaged in underwriting specialty lines of property and casualty insurance and reinsurance. After remaining nearly flat for the most part of the first half of the year, the company’s stock jumped by 10% between mid-June and mid-August, but has fallen since then and currently trades up by 4.15% year-to-date. On August 5, Keefe, Bruyette & Woods reiterated its ‘Outperform’ rating on the stock and raised the price target $70 from $68. Ric Dillon‘s Diamond Hill Capital was the largest shareholder of Endurance Specialty Holdings Ltd. (NYSE:ENH) among the funs in our database, owning almost 940,000 shares as of the end of June.
Finally, let’s evaluate the insider selling in diagnostic imaging services provider RadNet Inc. (NASDAQ:RDNT). Norman R. Hames, the Secretary and COO of Western Operations, sold 6,000 shares of RadNet Inc. (NASDAQ:RDNT) in three transactions on September 2 at an average price of $6.04 per unit. After this transaction, Mr. Hames’ stake in the company stands at 717,050 shares. Due to the loss of $0.11 per share reported for the first quarter, when analysts were expecting a profit of $0.06, RadNet Inc. (NASDAQ:RDNT)’s stock plunged by 30% in a few days. Even though the stock was able to recoup some of the losses after the company declared its second-quarter results, that rally was short-lived in the wake of the recent market volatility and currently trades down by 35% year-to-date. In August, B. Riley reiterated its ‘Buy’ rating and $11 price target on the stock, which represents a potential 170% premium to the current price. Among the funds that reduced their stake in the company during the second quarter was Jim Simons‘ Renaissance Technologies, which at the end of June owned 296,700 shares of RadNet Inc. (NASDAQ:RDNT).
Disclosure: None
