Barnes & Noble's Disappointing Results Prompt Big Insider Buy

• The chairman of this book store operator scooped up some shares this past week.
• Those purchases followed the release of second-quarter results.
• The share price dropped sharply following the earnings report.

Conventional wisdom says that insiders and 10 percent owners really only buy shares of a company for one reason -- they believe the stock price will rise and they want to profit from it. So insider buying can be an encouraging signal for potential investors, particularly in an overpriced market or after disappointing news. Case in point: a recent notable buy at Barnes & Noble, Inc. BKS.

Board Chair Leonard Riggio bought Dec. 1 a total of 1 million shares of this specialty retailer at $6.80 apiece, for a total of about $6.8 million. But note that on the same day, a vice president also reportedly sold more than 21,000 shares for more than $70,000.

See Also: How To Find Whether A Company's Insiders Are Buying Or Selling Stock

These transactions are in the wake of a reported bigger than expected second quarter loss, which the company blamed on a lack of Harry Potter this year. The stock tumbled from a previous close above $7.25 a share to around $6.60 after the report, as well as at least one analyst downgrade. Shares were still trading in that neighborhood on last look, below the chairman's purchase price.

Barnes & Noble has a market capitalization near $480 million. Short interest is more than 10 percent of the float, and the consensus recommendation of analysts is to hold shares. The stock is down around 40 percent since the beginning of the year, and the 52-week low is $6.25.