Over the last several weeks, TipRanks has been proving that it is possible to systematically outperform the market by using insider transaction data. Recently however, Prospect Capital Corporation (NASDAQ: PSEC) has shown just how powerful using such an analysis and strategy can be. We call this the insider outsider loop. It all started with Prospect Capital CEO John Barry’s purchase of $3,697,705 million, published last Friday on the EDGAR database, and has been continuing since.
Our “insiders” algorithm (DailyInsider), for which the results are published on a daily basis, picked up on this trade as a unique investment opportunity for Monday’s open because one the transactions was made by a CEO, and not just any CEO, but one with an incredibly solid historical success rate. TipRanks, a site that measures the profitability of transactions made by insiders, currently posts 44 transactions on his profile; with a 77% hit ratio and 22.5% average return in the year following each transaction.
On Monday, December 21, the open to close return for PSEC was a mere 0.45%, but unlike most days two new transactions were uploaded to the database. Again, John Barry with a near $5 million purchase, alongside COO Grier Eliasek,who also purchased $0.2 million worth of shares. This of course was music to our algorithm which again picked PSEC as a daily recommendation. Shares increased again on Tuesday, now a more significant 1.47% increase (intraday, open to close).
By now investors should have picked up on this unusual buying behavior, as those two have been buying stock for over two weeks.
As the image above demonstrates, Tuesday was no different with another $5 million coming in from John Berry, accompanied by another $0.5 million from Grier Eliasek. Once a trend starts and gains momentum it’s hard to break, and with help from investors the stock shot up another 3.74% (intraday) on Wednesday. But this is not the end, and yesterday both were at it again with the CEO acquiring another $7 million and COO another $0.3 million.
Has Christmas come early? What should investors think of this? Two important questions come to mind:
- Will the market continue responding bullishly to this cycle of insider buying?
- Will the CEO and COO keep reliably buying up shares, and until when?
Famous investor Peter Lynch once said, “There are many reasons insiders sell, but only one reason insiders buy.” That reason is that they believe the company is about to increase in value. So where exactly is it Prospect Capital Corporation going? Perhaps these two know something that we don’t.
You can find up to date insider transaction information on TipRanks and the algorithmic results for day-trading opportunities with the premium newsletter the DailyInsider.