Small-Cap Insider Trading: Should You Pay Attention?

Small-Cap Insider Trading: Should You Pay Attention?

For years, investors have been basing their decisions, in part, on insider trading. Peter Lynch had a saying “Insiders might sell their shares for any number of reasons but they buy them for only one: they think the price will rise.” Indeed research has shown that when executives have purchased shares in their own companies, the stock has outperformed the market by an average of 8.9 percent for the following 12 months. On the flip side, when they sold shares, the stock underperformed the market average by 5.4 percent for the following year. Following are a couple of small-caps that have experienced recent insider trading.

Maryland based Agree Realty Corporation (NYSE: ADC) is engaged in buying and developing single tenant properties leased to leading brick and mortar retail outlets. Agree currently has a portfolio of over 110 properties in 28 states containing 3.3 million square feet of leasable space. On January 30, 2013 the company announced the acquisition of Dicks Sporting Goods and Petsmart in St Joseph Missouri. Both tenants have around nine and a half years remaining on their respective leases. The cost of the acquisitions combined was around $8.5 million. Two weeks prior, company director John Rakolta purchased 50,000 shares of Agree at a cost of $23.28 per share. On the same day, the company announced the pricing of 1,500,000 shares of its common stock at a public offering price of $27.25 per share. The company will use the money to pay down debt. Agree has a market cap of $325.47 million and is trading at around $28.36.

Founded in 1992, Exa Corporation (NASDAQ: EXA) develops and distributes computer-aided engineering software. The company went public in June of 2012. Recent insider trading includes a January 17, 2013 purchase of 15,988 shares by COO Edmond Furlong. Stephen P. Sarno and Director John William Poduska Sr. bought shares of EXA stock in January as well, while CEO and President Stephen A. Remondi sold shares. In fact, since its IPO less than a year ago, the company has had a high volume of insider trading, which is not unusual as Exa finds its place in the public sphere. According to Q3 financial results, company revenue grew by 9 percent comparable to 2011. Exa has a market cap of $125.28 million with shares currently trading at $9.47.

Bottom line is that legal insider trading is common among public companies. Company execs are privy to information before the stockholder hears anything. Insider trading can be used as a tool to gauge a company’s growth or lack of same. Take it from Peter Lynch; it pays to pay attention to what management is buying or selling.