Insider Action Flags Retail Paired Trade

Although Target(TGT Quote) has garnered many kudos for its merchandising, Saks' stock has outpaced Target's over the past five years. Saks also sports a much higher forward price-to-earnings multiple than Target, 28 vs. 17. That may be justified on growth percentages, but profitability-wise, Saks is a much poorer cousin.

Saks' return on equity is a third of Target's, and even half that of boring old Federated Department Stores(FD Quote). Comparing operating margins of these three is even less flattering to Saks. Saks seems to have done well selling itself to Wall Street thus far, but one can wonder if much of what's positive about Saks' prospects has already been priced into its stock.

Insiders at the Register

Saks' insiders seem to believe the present value of their firm's stock is good enough to cash in on. Seven of them sold more than 2 million shares in November at an average price of $17.50. Though mostly option-related, that mitigates the negative aspect of this large selling cluster only slightly.

The unanimity of the accelerated selling seems to indicate that this group does not feel it worthwhile to wait until Christmas sales numbers are released to reap these risk-free gains. This gives the impression that the numbers may not quite be all "ho-ho-ho" and "fa-la-la-la-la" -- especially because cashing out early next year seems better for tax purposes, as well.

Adding to the negative aspect of this selling is that it was done after the stock sold off more than 30% from its recent highs. Insiders selling into weakness is not a positive indication. That's when investors would expect to see insiders buy in, showing their faith in a stock's recovery.

In stark contrast, that is exactly what insiders at Restoration Hardware have been doing. With the stock now trading for about 30% of its 52-week highs as well, two insiders recently purchased nearly 300,000 shares between $5.47 and $6.38.

Director Glenn Krevlin is the major buyer. He represents investment firm Glenhill Capital, and has proven adept at picking up Restoration during its many dips. He was last active back in April, when the stock was also around this price. Between then and now, Restoration traded up to $9, and one insider took advantage of that strength to sell options heavily. Tellingly, that seller appears to be on the sidelines now, another indication that insiders feel positive about the stock's near-term prospects.