LGIH: Insiders vs. Shorts

The most recent short interest data was recently released by the NASDAQ for the 05/29/2015 settlement date, and LGI Homes, Inc. (LGIH) is one of the most shorted stocks of the Russell 3000, based on 20.94 "days to cover" versus the median component at 6.38. There are a number of ways to look at short data, but one metric that we find particularly useful is the "days to cover" because it considers both the total shares short and the average daily volume of shares typically traded. The number of shares short is then divided by the average daily volume, to express the total number of trading days it would take to close out all of the open short positions if every share traded represented a short position being closed.

START SLIDESHOW:
Ten Bargains You Can Buy Cheaper Than The Insiders Did »

In the case of LGI Homes, Inc. ( LGIH), the total short interest at the 05/29/2015 settlement date was 2,668,081 shares, which compares to the average daily trading volume of just 127,423 shares, for a "days to cover" ratio of 20.94.

When short sellers eventually cover their positions, by definition there must be buying activity because a share that is currently sold short must be purchased to be covered. At the present levels of short interest, if from this point forward every single LGIH share traded represented a short position being closed, then at the average daily volume of 127,423 shares it would only be during the 21st trading day that every short position would be closed.

So it would stand to reason that should some unexpectedly good news come out, and short sellers did not have 21 days of patience but instead wanted to cover their short positions very suddenly, that situation could result in sending the stock higher until the higher price produces enough sellers to generate the necessary volume to close out those positions quickly.

LGI Homes, Inc. ( LGIH) has something relatively rare for a stock with this much short interest, that being insiders taking the other side of the trade. Looking back over the trailing six month period, LGIH has seen 4 different instances of insider buying, as summarized by the table below:

Purchased Insider Title Shares Price/Share Value
03/18/2015 Bryan Christopher Sansbury Director 3,000 $14.31 $42,938.75
03/19/2015 Duncan S. Gage Director 26,983 $14.54 $392,322.52
03/18/2015 Ryan Edone Director 4,095 $14.43 $59,078.21
03/19/2015 Margaret Mary Britton Chief Administrative Officer 2,500 $14.56 $36,388.95
03/23/2015 Ryan Edone Director 650 $15.79 $10,263.50

Below is a chart showing the "days to cover" for LGIH over time:

Loading+chart++2015+TickerTech.com

And looking at the chart below, LGIH's low point in its 52 week range is $12.21 per share, with $22.21 as the 52 week high point — that compares with a last trade of $18.98.

LGI Homes, Inc. Moving Averages Chart

In recent trading, shares of LGI Homes, Inc. ( LGIH) were changing hands at $18.98/share.

More from Stocks

Video: When Planning for Retirement, Don't Underestimate Your Life Span

Video: When Planning for Retirement, Don't Underestimate Your Life Span

Video: Here's How Global Stocks Can Boost Your Portfolio

Video: Here's How Global Stocks Can Boost Your Portfolio

Micron Shares Pop After-Hours as Chipmaker Announces $10 Billion Stock Buyback

Micron Shares Pop After-Hours as Chipmaker Announces $10 Billion Stock Buyback

Video: Here's What May Come Next for Theranos Founder and CEO Elizabeth Holmes

Video: Here's What May Come Next for Theranos Founder and CEO Elizabeth Holmes

Dow Leads Major Indices With Triple-Digit Rally

Dow Leads Major Indices With Triple-Digit Rally