SeaChange (SEAC) Among 3 Companies Whose CEOs Bought Shares This Week

As a general rule, insider buying usually indicates that directors and executives of public companies find shares of their firms to be undervalued relative to the broader market or industry peers. When CEOs or other top-tier executives use their own wealth to buy shares of their companies on the open market, they are explicitly voicing their belief that those shares will appreciate in value over time. Past research suggests that insider purchases, particularly those made by top-level executives, tend to beat broader market benchmarks by a wide margin. For that reason, the following article will lay out a list of three companies that had their most influential executives buy shares earlier this week, all of which were filed with the SEC on Wednesday.

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).

This Multiscreen Video Company Had Two Insiders Buy Shares

Let’s begin our discussion by having a look into the insider buying activity at SeaChange International (NASDAQ:SEAC), which had two influential insiders buy sizable blocks of shares this week. To start with, freshly-appointed Chief Executive Officer Edward Terino, who served as Chief Operating Officer from June 2015 until his recent appointment as CEO, purchased 40,000 shares on Tuesday at prices that ranged from $3.79 to $3.87 per share, boosting his overall holding to 230,475 shares. Earlier this month, the multiscreen video company announced the appointment of the software veteran as CEO after the company’s Board of Directors terminated the employment of former CEO, Jay Samit. Moreover, Steven C. Craddock, Chairman of the Board, snapped up 25,000 units of common stock on Tuesday at prices varying from $3.80 to $3.98 per share, which lifted his ownership to 84,233 units.

The shares of SeaChange plunged by more than 10% on Friday after the company released a disappointing earnings report for the fourth quarter for fiscal year 2016. The company’s total revenue for fiscal year 2016 that ended January 31 totaled $106.99 million, down from $115.44 million in fiscal year 2015, and from $146.32 million in fiscal year 2014. SeaChange’s product revenue, which accounted for 20% of total revenue in fiscal year 2016, fell by 31% year-over-year to $21.90 million. The significant decrease in product revenue was mainly driven by a decline in the company’s legacy advertising insertion products, a decrease in video-on-demand (VOD) streamer products, as well as lower Adrenalin products in Europe. Meanwhile, service revenue grew by 1% year-over-year due to higher gateway service revenue, which was partially offset by lower VOD streamer support revenue. The company’s bottom-line figure has been worsening alongside its declining revenue in recent years, with fiscal year 2016 income reaching a net loss of $47.70 million, far worse than the $27.48 million loss in fiscal year 2015 and the $3.03 million loss in fiscal year 2014. Nonetheless, SeaChange’s management anticipates returning to revenue growth and profitability in fiscal year 2017, guiding for revenue of $110 million-to-$120 million and non-GAAP operating income per diluted share of $0.05-to-$0.15. Shares of SeaChange are down by 40% since the beginning of 2016.

There were ten hedge funds in our system with stakes in the multiscreen video company at the end of December, which amassed almost 22% of the company’s outstanding shares. John W. Rogers’ Ariel Investments reported ownership of 2.76 million shares of SeaChange International (NASDAQ:SEAC) through the round of 13Fs filings for the fourth quarter.

The next two pages of this article discuss the insider buying registered at Castle Brands Inc. (NYSEMKT:ROX) and Citizens Inc. (NYSE:CIA).

This Spirits Company’s CEO Buys More Shares on the Open Market

Castle Brands Inc. (NYSEMKT:ROX) is yet another company that saw its top executive purchase shares this week. President and Chief Executive Officer Richard Lampen acquired 10,000 shares on Tuesday at prices of between $0.86 and $0.88 per share. Mr. Lampen, who also purchased 7,100 shares on March 29 for $0.85 each, currently owns 1.24 million shares. The CEO also bought two separate 25,000-share blocks in March, so he definitely sees strong potential in the company. Castle Brands is an international spirits company that develops and markets premium and super premium brands in several beverage alcohol categories such as rum, whiskey, liqueurs, vodka and tequila. The company distributes its products across the United States and 13 primary international markets.

Castle Brands’ net sales for the nine months that ended December 31 grew by 26.5% year-over-year to $52.3 million, primarily as a result of overall growth in the Jefferson’s portfolio, Gosling’s rum, and Gosling’s Stormy Ginger Beer. Higher sales of Jefferson’s, Jefferson’s Reserve, and Jefferson’s Ocean Aged at Sea bourbons positively impacted Castle Brands’ overall spirits sales volume for the nine-month period, whereas decreases in sales of the liqueurs portfolio offset some of that positive impact. The spirits company’s gross profit grew by 32.2% to $20.4 million for the nine month period, with the gross margin increasing to 39.0% from 37.3%. The increase in both indicators was mainly driven by higher sales of more profitable brands such as the Jefferson’s bourbons. Even so, Castle Brands has been struggling to reach profitability in recent years, and has not generated positive cash flow from operations since inception.

Castle Brands has seen its market value decline by 37% in the past 12 months, after plunging by 26% thus far in 2016. A mere four money managers tracked by Insider Monkey were invested in the spirits company at the end of 2015. Paul Tudor Jones’ Tudor Investment owned 70,500 shares of Castle Brands Inc. (NYSEMKT:ROX) on December 31.

Citizens’ CEO Made a Small Purchase of Shares This Week

The man in charge of Citizens Inc. (NYSE:CIA) also bought some shares this week. Chairman and Chief Executive Officer Rick D. Riley bought 1,331 Class A shares on Wednesday at $7.48 apiece, boosting his ownership to 535,864 shares. It is not entirely clear what caused the company’s share price to jump by nearly 10% on Wednesday, but the CEO’s bullish move might represent at least part of the explanation.

Citizens Inc. operates as an insurance holding company whose main insurance operations involve issuing and servicing ordinary whole life insurance and endowment policies sold to foreign residents in Latin America and the Pacific Rim; ordinary whole life insurance policies to middle-income households in the Midwest, Mountain West, and Southern United States, as well as final expense and limited liability property policies to middle- and lower-income households in Louisiana, Mississippi, and Arkansas. Citizens Inc. generates revenue mainly from the following three sources: premiums earned for insurance coverages, net investment income, and net realized capital gains and losses. The company’s premium income derived from life, accident and health, and property insurance sales grew by 3.2% in 2015 to $187.69 million. The increase was mainly driven by higher renewal premiums, which increased by 5.1%. New sales, also known as first-year premiums dropped by 2.7% in the life segment in 2015, after increasing by a whopping 13.2% in 2014. It is believed that the decrease in new sales, which mainly occurred in the final quarter of 2015, was related to the change in the company’s marketing leadership to Rick Riley from his brother Randall Riley (both are sons of the company’s founder Harold E. Riley) in October 2015.

Shares of Citizens Inc. have gained 12% year-to-date, extending their one-year gain to 36%. Only two hedge fund vehicles monitored by our team had stakes in the company at the end of 2015. Ken Griffin’s Citadel Advisors LLC owned 51,952 shares of Citizens Inc. (NYSE:CIA) at the end of 2015.

Disclosure: None