Backtested insider buying as an earnings predictor for stocks that have reported so far
u/stockist420 ·
Reddit — r/smallstreetbets
· February 16, 2026 at 07:04
· ⬆ 94 pts
· 💬 12 comments
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Summary
The post analyzes the predictive power of insider buying on short-term earnings-related stock moves. The author backtested Form 4 filings against 80 stocks that had significant post-earnings price changes.
The author's thesis is that small-to-medium-sized insider buys (especially from directors or VPs) are a poor predictor of positive earnings results and are often "noise" or for "optics." Only very large, clustered, or CEO/CFO-led buys are potentially meaningful signals.
Quality assessment: This is well-researched DD (due diligence). The author provides a clear methodology, a dataset, specific examples, and a nuanced conclusion based on the data presented. While the sample size (80 stocks) is small, the analysis is structured and data-driven.
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Pulled every Form 4 filing from EDGAR for the last 3 months, cross-referenced against 80 stocks that moved >3% on earnings over the past 2 weeks (Jan 27 - Feb 13). Checked if insider buying before earnings predicted the direction.
### The numbers
| Signal | Count | Avg Earnings Move | % Correct Direction |
|:---|:---:|:---:|:---:|
| Insider bought before earnings | 19 | -11.5% | 21% |
| Insider sold before earnings | 50 | +1.4% | 50% |
| No insider activity | 22 | -12.0% | 27% |
Insider buying was **wrong 79% of the time**. Worse than flipping a coin. Worse than having no signal at all.
Insider selling was a perfect coin flip — 50/50.
### The failures
These insiders bought with their own money in the 3 months before earnings. All of them got destroyed:
| Ticker | Insider Buy $ | Earnings Move | What happened |
|:---|---:|:---:|:---|
| PFSI | $200K | -33.2% | Director bought at $89, stock cratered |
| RAL | $512K | -31.8% | Three different insiders bought the week before. All wrong. |
| RBBN | $74K | -27.9% | Director bought at $2.06, still dropping |
| MOH | $100K | -25.5% | Director bought at $125. Molina missed by 739%. |
| AZTA | $190K | -22.8% | Board member bought at $27 |
| LUMN | $500K | -21.6% | VP bought 78K shares at $6.35. Beat estimates by 209% and still dropped 22%. |
| CVCO | $867K | -20.3% | CEO bought at $462-500. Most expensive wrong call in the sample. |
LUMN is the funniest one. Beat earnings by 209%, insider bought $500K the week before, stock still dropped 22%.
### The only wins
| Ticker | Insider Buy $ | Earnings Move | What happened |
|:---|---:|:---:|:---|
| UAA | $219M | +20.4% | Prem Watsa (Fairfax Financial) loaded 35M+ shares across multiple days in January |
| ENPH | $723K | +38.6% | CEO Kothandaraman bought repeatedly at $30 and $51 |
| MSTR | $3.3M | +26.1% | Multiple insiders bought. Also had $6.5M in selling. MSTR gonna MSTR. |
The only buys that worked were either **massive** ($219M from a known value investor) or **from the CEO specifically** buying repeatedly.
Every single director buy, VP buy, and board member buy under $1M failed.
### What the data actually says
Small insider buys are noise. Directors buy $100K-$500K for optics or because their governance guidelines require minimum holdings. It tells you nothing about next quarter.
The only insider signal worth watching:
- CEO/CFO buying >$1M with their own cash (not options)
- Cluster buying (3+ insiders at the same time)
- Size relative to compensation matters — a CFO buying $2M when they make $500K is a different signal than a board member buying $200K when they're worth $50M
Insider buying is a conviction signal about the next 12 months, not the next earnings print.
### Methodology
- 80 stocks that moved >3% on earnings (Jan 27 - Feb 13, 2026)
- Insider data from EDGAR Form 4 filings, last 3 months
- Only counted market purchases (code P), not option exercises or grants
- Price data from Polygon
- Filtered to market cap >$100M
A director bought $200K worth of stock at $89 before earnings. The stock then dropped 33.2%. This is the author's prime example of a failed insider buy signal. It fits the pattern of a relatively small buy from a non-C-suite insider that proved completely wrong. The author categorizes such buys as "noise" or for "optics" and demonstrates they have negative predictive value in this sample. Following the author's logic, this type of insider signal should be ignored or even viewed with skepticism. The subsequent price collapse validates the thesis that such buys are not reliable indicators of positive short-term results. Therefore, one should avoid making investment decisions based on this type of signal. The director's thesis for buying might be long-term, and the post-earnings drop could represent a better buying opportunity if their long-term view is correct. The negative earnings report could have been caused by a one-off event that does not invalidate the company's fundamental long-term prospects.
A significant insider, Prem Watsa of Fairfax Financial, purchased over $219 million worth of UAA shares in January. The stock subsequently moved +20.4% on earnings. The author identifies this as one of the few "wins" for the insider buying signal, specifically highlighting that a massive purchase from a known value investor was a successful predictor. This suggests strong conviction from a sophisticated party about the company's long-term value, which may not be fully priced in even after the initial earnings pop. UAA warrants further investigation. The massive insider buy from a respected investor is a strong long-term conviction signal, contrasting with the noise of smaller buys. This could indicate a potential turnaround or undervaluation story worth monitoring for a long-term entry point. The positive news might already be priced in after the 20% move. The investor's thesis could be very long-term (multi-year), meaning the stock could see volatility or underperformance in the short to medium term. The reasons for the purchase may be specific to Fairfax's portfolio strategy and not a pure-play bet on UAA's fundamentals. TICKER - DIRECTION
The CEO, Kothandaraman, made repeated purchases totaling over $723K at prices of $30 and $51. The stock then moved +38.6% after earnings. This event is highlighted as a key exception to the rule that insider buying is a poor predictor. The author's framework explicitly states that "CEO/CFO buying >$1M with their own cash" (this is close) and repeated buying are signals worth watching. This action demonstrates high conviction from the most senior executive. The repeated buying pattern from the CEO, which preceded a significant positive earnings move, is a strong bullish signal according to the author's refined thesis. This suggests the CEO has high confidence in the company's ongoing operations and future prospects, making ENPH a candidate for a long position. The stock has already run up 38.6%, so a significant portion of the good news may be priced in. The CEO's purchases, while significant, occurred at much lower prices ($30s and $50s), and the current price may not offer the same value. The broader market or sector sentiment for solar/energy could shift, overriding this company-specific signal. TICKER - DIRECTION
This Reddit post, published February 16, 2026,
features u/stockist420
discussing PFSI, UAA, ENPH.
3 trade ideas extracted by AI with direction and confidence scoring.