Insiders often buy and sell their company shares prior to or after earnings (outside of the blackout period). This has caused researchers to explore whether outsiders can gain any informational advantage by paying attention to insider buying and selling activities of executives before company earnings.
A research paper titled Market reactions to insider trading prior to corporate earnings disclosure says companies where the gap between the salary of CEO and other executives is high, chances of insider trading and a weaker board is increased. The paper said that insider returns are greater for companies with higher earnings surprises. But most importantly, the research cited various other studies which show that insiders “exploit” news before earnings disclosures and “time” their trades around voluntary disclosure to increase their profits, and they create profit opportunities by “changing their voluntary disclosure practices.”
The paper also cited a study which shows that the relationship between an upcoming bad earnings report and insider selling prior to it is much stronger than the relationship (non-linear) between insider purchases and upcoming good earnings news.
Can Outsiders Profit from Insider Trading Before/After Earnings?
Investors and researchers interested in tracking insider buying and selling activities have long wondered whether insider purchases or sells before earnings announcements have any informational value for outsiders. A research paper titled Insider Trading, Future Earnings, and Post-Earnings Announcement Drift found that paying attention to pre-earnings insider transactions could decrease the post–earnings-announcement drift or PEAD significantly. Why? Because when the market is aware of insiders purchasing a stock before its earnings, the chances of investors second-guessing or speculating decline, causing a decrease in PEAD, which is the tendency for a stock’s cumulative abnormal returns to drift in the direction of earnings surprise for several weeks. The negative correlation between PEAD and insider purchases is higher for large stocks, according to the research:
“Given their superior motivation, resources, and ability to combine the information from insider trades with their better understanding of the earnings process, we expect that sophisticated market participants, such as institutional investors and financial analysts, can more efficiently extract insiders’ private information from their trades and incorporate this information in their trading or forecasting decisions. Consistent with our expectations, we find the negative association between insider trading and PEAD is significantly stronger in firms with greater institutional ownership, analyst coverage, and competition among informed investors (Akins et al., 2012). Taken together, our findings indicate insider trading is negatively associated with PEAD at least in part because it helps sophisticated market participants better understand the time-series properties of earnings news, and especially the persistence of earnings.”
Which Stocks Saw Insider Buying and Selling Before/After Their Earnings?
In this article we will take a look at some stocks that saw insider buying before or after their earnings. Insider Monkey has been examining insider buying and selling activity rigorously this earnings season.
To see full coverage of this topic, click => Top 5 Stocks Insiders Bought Before/After Latest Earnings
Some top names in the list are Consolidated Edison, Inc. (NYSE:ED), Herbalife Ltd (NYSE:HLF) and CVS Health Corp (NYSE:CVS).
Mobile Infrastructure Corp (NYSE:BEEP)
Number of Hedge Fund Investors: N/A
Parking facilities company Mobile Infrastructure Corp (NYSE:BEEP) is one of the stocks seeing insider buying activity before its earnings. Mobile Infrastructure Corp (NYSE:BEEP) is slated to announced its latest quarterly numbers on May 15. On April 19, Mobile Infrastructure Corp’s (NYSE:BEEP) CEO Manuel Chavez III bought 55,116 shares of Mobile Infrastructure Corp (NYSE:BEEP) at $3.39 per share. The executive conducted several insider buying transactions throughout April. On April 17 he bought 16,861 shares of Mobile Infrastructure Corp (NYSE:BEEP). Since then the stock price has gained 2.33%.
RGC Resources Inc (NASDAQ:RGCO)
Number of Hedge Fund Investors: 3
Energy services company RGC Resources Inc (NASDAQ:RGCO) is one of the stocks that saw insider buying amid earnings.
On May 1, RGC Resources Inc (NASDAQ:RGCO) posted fiscal second quarter results, which show that RGC Resources Inc’s (NASDAQ:RGCO) second quarter EPS came in at $0.63. Revenue in the period fell 14.1% year over year to $32.66 million, missing estimates by $1.34 million. On the same day, Lawrence T. Oliver, the Vice President and Secretary at RGC Resources Inc (NASDAQ:RGCO), bought just 10 shares of RGC Resources Inc (NASDAQ:RGCO) at $20.94 per share. RGC’s VP of HR Christen Brooke Miles also bought five shares of RGC Resources Inc (NASDAQ:RGCO) at $20.94 per share. Since these transactions the stock is up 1.4%.
In addition to RGCO, Consolidated Edison, Inc. (NYSE:ED), Herbalife Ltd (NYSE:HLF) and CVS Health Corp (NYSE:CVS) are also seeing insider buying.
Enviri Corp (NYSE:NVRI)
Number of Hedge Fund Investors: 16
Enviri Corp (NYSE:NVRI), previously Harsco, sells environmental solutions for industrial and specialty waste streams. Enviri Corp (NYSE:NVRI) posted first quarter results on May 2. Adjusted EPS in the quarter came in at -$0.03, while revenue jumped about 7% year over year to $600 million. The stock saw insider buying activity on May 6 when F. Nicholas Grasberger III, Enviri Corp’s (NYSE:NVRI) CEO, bought 25,000 shares of Enviri Corp (NYSE:NVRI) at $7.59 per share. Since this transaction the stock has gained about 3.5%.
Diebold Nixdorf Inc (NYSE:DBD)
Number of Hedge Fund Investors: 17
Financial and retail technology company Diebold Nixdorf Inc (NYSE:DBD) announced first quarter results on May 1. GAAP EPS in the period came in at -$0.39. Revenue in the quarter jumped 5.1% year over year to $897.1 million.
On May 7, Frank Tobias Baur, the Executive Vice President of Operational Excellence at Diebold Nixdorf Inc (NYSE:DBD), bought 4200 shares of Diebold Nixdorf Inc (NYSE:DBD) at $39.46 per share. On May 6 Diebold Nixdorf Inc’s (NYSE:DBD) CFO Octavio Marquez bought 513 shares of Diebold Nixdorf Inc (NYSE:DBD) at $38.90 per share. Since then the stock has gained about 3.71%.
Like DBD, Consolidated Edison, Inc. (NYSE:ED), Herbalife Ltd (NYSE:HLF) and CVS Health Corp (NYSE:CVS) also saw insider buying recently.
Sabre Corp (NASDAQ:SABR)
Number of Hedge Fund Investors: 26
Travel technology company Sabre Corp (NASDAQ:SABR) ranks seventh in our list of the stocks seeing insider buying activity before or after their latest earnings. On May 2, Sabre Corp (NASDAQ:SABR) posted strong Q1 results. EPS in the period came in at -$0.02, beating estimates by $0.04. Revenue in the period jumped 5.4% year over year to $783 million, surpassing estimates by $29.4 million. On May 3, Sabre Corp (NASDAQ:SABR) CFO Michael O. Randolfi, bought 50,000 shares of Sabre Corp (NASDAQ:SABR) at $2.98 per share. Since then the stock has gained about 3%.
Kemper Corp (NYSE:KMPR)
Number of Hedge Fund Investors: 27
Insurance company Kemper Corp (NYSE:KMPR) posted first quarter results on May 1. Its adjusted EPS in the quarter came in at $1.07, missing estimates by $0.02. Revenue in the period fell 11.6% year over year to $1.14 billion, surpassing estimates by $80 million. On May 3, Alberto J. Paracchini, a director at Kemper Corp’s (NYSE:KMPR) board, piled into 425 shares of Kemper Corp (NYSE:KMPR) at $58.54 per share. The total value of this investment was $24,880. Since this transaction the stock price has gained about 2.35%.
These aren’t the only stocks seeing insider purchases before or after their earnings. To see full list of such stocks and our latest coverage on the topic , click====> Top 5 Stocks Insiders Bought Before/After Latest Earnings
Disclosure. None. Which Stocks Insiders Bought Before/After Latest Earnings? was initially published on Insider Monkey.