Insider Trading Report Edition #211: Notable Buys And Sales

Welcome to edition 211 of Insider Weekends. Insider buying edged up slightly last week with insiders buying $29.59 million of stock compared to $29.36 million in the week prior. Selling declined with insiders selling $819.56 million of stock last week compared to $856.32 million in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week dropped down to 27.7. In other words, insiders sold almost 28 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the prior week, when the ratio stood at 29.17. We are calculating an adjusted ratio by removing transactions by funds and companies and trying as best as possible only to retain information about insiders and 10% owners who are not funds or companies.

Insider Sell Buy Ratio July 4, 2014

Insider Sell Buy Ratio July 4, 2014

Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys:

1. American Apparel, Inc. (APP): $0.87

CEO (Suspended) Dov Charney acquired 27,351,407 shares of this apparel chain, paying $0.71 per share for a total amount of $19.56 million. Mr. Charney increased his stake by 57.94% to 74,560,813 shares with this purchase. These shares were purchased indirectly through a fund.

This large purchase by Mr. Charney bumped his stake in American Apparel from 27% to 43% and was made possible through a $20 million loan from the hedge fund Standard General. The loan and purchase follow the board of directors decision to boot Mr. Charney from his position as Chairman and CEO of the company based on allegations of misuse of company funds and the dissemination of nude photos of a former employee. He has also been dogged for years by sexual harassment claims at the company that is known as much for its scantily clad models as it is for its “Made in America” claim.

The decision by the board to remove Mr. Charney could trigger a default of $40 million in debt. The company has a highly leveraged balance sheet with $251 million in debt and just $16.68 million in cash. The load by Standard General comes with strings attached and it appears that Mr. Charney is giving up voting control to Standard General and might not get his position as CEO back. The stock, which had been on a steady decline has rebounded in the wake of Mr. Charney’s potential ouster. You can read more about this rather strange set of events here and here.

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