A particularly strong insider buying signal is what we call a “cluster-buy” where three or more different insiders make open market purchases within a short period of one another. At Sharps Compliance Corp. (NASD: SMED), 4 different insiders purchased 61,050 shares at an average price of $ 4.13/share, for a total of $ 252,282, with the most recent purchase on November 21, 2011.

Presumably the only reason an insider would take their hard-earned cash and use it to buy stock of their company in the open market, is that they expect to make money. So when multiple insiders all decide to make purchases around the same time, it could be a strong indication that the stock is undervalued. Below is a table summarizing the insider buys that make up this “cluster”:

Purchased Insider Title Shares Price/Share Value
11/21/2011 John W Dalton Director 13,800 $ 4.03 $ 55,608.00
11/21/2011 Parris H JR Holmes Director 36,500 $ 4.18 $ 152,397.36
11/18/2011 Diana P Diaz Vice President & CFO 1,250 $ 4.04 $ 5,050.00
11/21/2011 David P Tusa CEO and President 9,500 $ 4.13 $ 39,227.10

The chart below shows the one year performance of SMED shares, versus its 200 day moving average. Note that SMED’s low point in its 52 week range is $ 2.66 per share, with $ 5.79 as the 52 week high point — that compares with a last trade of $ 4.38, with shares currently trading trading flat on the day.

Sharps Compliance Corp. Chart

SMED operates in the Diagnostics sector, among companies like Providence Service Corp (NASD: PRSC) which is off about 0.4% today, and Cross Country Healthcare Inc (NASD: CCRN) trading higher by about 0.4%. Below is a three month price history chart comparing the stock performance of SMED, versus PRSC and CCRN.

SMED,PRSC,CCRN Relative Performance Chart


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