A
director of Sonic Foundry (NASDAQ: SOFO) bought $181,000
of stock in July and August for an average price of $8.70, resulting in a 16.55
percent return in roughly 7.5 months (28 percent annualized). A series
of insider purchases are sending another buy signal.
Academic
research has shown that companies with insider purchases far outperform the market.
A 2002 study from Boston University, Wharton, and Harvard showed that insiders
outperformed the market by an average of 11.2 percent per year with their
purchases; the average return on small-cap stocks is even higher.
Four
directors and the CEO of Sonic Foundry purchased shares
last week for a total value of $118,000 (the company has a market cap of just
42.91 million.) This is on top of $108,000 worth of purchases in February.
Although some investors discount automatic purchases (roughly half of shares
purchased were automatic), insiders would not have set them up if they weren’t
optimistic on the company’s future. In addition, a loophole in the SEC’s Rule
10b5-1 allows persons with inside information to cancel planned trades before
they take place without penalty.
This
is also encouraging for an S-3 was filed on Tuesday, March 11, registering
$2,153,889 of stock from which the company will receive no proceeds. The
purchases show that insiders think shares are undervalued despite the potential
dilution.
The
purchases come after shares have been battered down from 2010, when operating
income for fiscal year 2011 was $806,000 versus a $638,000 loss for fiscal year
2013. The loss in profitability can be largely attributed to rising
SG&A expenses, as revenue has risen 12.64 percent.
Sonic
Foundry offers a webcasting platform used by higher education, businesses and
government to capture presentations and enhance communication. IBISWorld
expects the educational support industry to grow by 6.5, 6.2, and 5.7 percent
for the next three years versus 2.5, 3.2, and 3.9 percent for the US GDP.
IBISWorld writes, “While tighter state budgets will limit unnecessary
expenditure, an underlying level of demand for support services will
remain,” and that a push to expand educational funding by the Obama
administration is also a strong sign.
Despite
a 6.28 percent drop Tuesday after the S-3 filing, shares are still up 4.32
percent year-to-date versus the Powershare
Microcap ETF (NYSE: PZI) up 3.14 percent.
Sonic Foundry last traded at $10.14.
Read more
Benzinga.com small-cap articles: http://www.benzinga.com/news/small-cap
Disclaimer: This
article was posted with the permission of a third-party contributor
and the opinions contained therein do not necessarily reflect
those of Smallcappower. Smallcappower does not endorse any investment
advice provided by these third-party contributors. Please consult
your investment advisor before making any investment decisions.
Ubika
Corporation and its divisions Smallcappower, Ubika Communication and Ubika
Research are not registered with any financial or securities
regulatory authority in Ontario or Canada, and do not provide nor claims
to provide investment advice or recommendations to any visitor of this site or
readers of any content on this site. – See more at: http://www.smallcappower.com/posts/small-cap-power-disclosure#.UoJQkZEq_vw
