Whenever markets are gripped by volatility, a lot of investors panic, and insiders are no different. Though insider selling isn’t always due to a bearish outlook on the stock or because of external market factors, it can sometimes be the case that insiders are selling for one of these reasons, particularly if they feel the value of their holdings will fall dramatically, whether they believe it’s actually deserved or not. In the last 15 days or so, numerous stocks have witnessed aggressive selling, however, there are two stocks that have caught our attention recently, as even though they haven’t fallen much in the past two weeks in comparison to other stocks, they have witnessed notable insider selling. In this article we are going to focus on them, and they are Isle of Capri Casinos (NASDAQ:ISLE), and Examworks Group, Inc. (NYSE:EXAM).
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 more than 118% over the ensuing 36 months, outperforming the S&P 500 Index by over 60 percentage points (read the 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.
Montana-based casino operator Isle of Capri Casinos (NASDAQ:ISLE) has turned out to be an outlier this year, being one of the few industry stocks that has more than doubled, which perhaps explains the insider selling of it. On September 4, Lee Wielansky, an Independent Director of the company disposed of 20,000 shares at a weighted average price of $19.11 per share. Following this transaction, Mr. Wielansky now owns 79,779 shares of Isle of Capri Casinos. The company announced in August that it will be closing its casino at Natchez, which is one of the oldest casinos in the state of Mississippi. More recently, shares of Isle of Capri Casinos climbed by over 10% on September 2 after the company released its fiscal first quarter of 2016 earnings after the market closed on September 1. EPS for the quarter came in at $0.28, compared to analysts’ consensus estimate of $0.17. Following the earnings declaration, analysts at Macquarie reiterated their ‘Outperform’ rating on the stock on September 3, while upping their price target to $23 from $20, which represents a potential upside of around 19%. During the second quarter, Jim Simons‘ Renaissance Technologies almost doubled its stake in Isle of Capri Casinos (NASDAQ:ISLE) to 830,023 shares.
Moving on, several Officers and Directors of Examworks Group, Inc. (NYSE:EXAM) have sold their shares in the last few days. The most recent of these transactions and also possibly the most noteworthy was executed by the company’s Executive Chairman, Richard Perlman, who after selling a total of 195,000 shares of the company between September 2 and 3, sold another 52,217 shares on September 4, at a weighted average price of $33.95 per share. Accounting for this transaction, Mr. Perlman’s stake in the company now stands at 432,204 shares. After remaining sideways throughout the first half of the year, shares of Examworks Group, Inc. started falling in late-June, however, even in the wake of heavy declines in the market recently, they continue to trade above the sub-$33 low they made in July. For the fiscal second quarter of 2015, the company reported an EPS loss of $0.19 on revenue of $208.70 million, compared to analysts’ estimate of an EPS loss of $0.21 on revenue of $201.70 million. James A. Noonan‘s Pivot Point Capital, which initiated a stake in Examworks Group, Inc. (NYSE:EXAM) during the third quarter of 2011 and has remained the largest shareholder of the company since then among the funds we monitor, continued to own slightly under 1.4 million shares of Examworks Group at the end of June.
Disclosure: None
