Read Between the Lines at Barnes & Noble

Tables: Buyers | Sellers

THE HARRY POTTER MAGIC MAY HAVE come to an end, but Barnes & Noble founder and Chairman Leonard Riggio is stocking up on the bookseller's shares for the first time in years.

On Sept. 11, Riggio, who stepped down as the company's chief executive officer in 2002, bought 100,000 shares on the open market for nearly $3.3 million, according to a Securities and Exchange Commission filing late Thursday. Per-share prices ranged from $30.94 to $33.38.

The transactions raised his stake to over 13.06 million shares, or more than 20% of the bookseller's outstanding shares.

A month earlier, Riggio had plunked down the same amount of money to buy 100,000 shares as well. These were his first open-market purchases at Barnes & Noble in nearly two years.

Riggio is the only Barnes & Noble insider who has reported an open-market transaction since early 1997, based on Thomson Financial data.

A company spokeswoman noted that the August purchases took place when the market was down, and Riggio "said he was doing it to show support."

Barnes & Noble shares had lost more than 30% of their value by August since peaking at a one-year high of $43.80 on May 24.

The stock has recovered a bit since then. Shares gained 2.6% to close, at $35.12 Friday. Though the bookseller's stock is down 6% over the past 12 months and underperforming the broader market, competitor Borders Group has fallen 29%.

Barnes & Noble is trading 18.4 times earnings estimates for the next four quarters, or a roughly 13% premium to its five-year average. Its current price/earnings multiple is 20% premium to the Standard & Poor's 500 when it has historically traded at a slight discount.

Jonathan Moreland, director of research at InsiderInsights.com, says that Riggio's $6.6 million purchases are "neutral at best" considering the heavy insider selling that took place earlier this year at only slightly higher prices. "I need more of a cluster buying… to get excited about [Barnes & Noble's] insider profile."

Instead, there has been cluster selling.

From late March through early August, a slew of Barnes & Noble executives and directors exercised 1.02 million options for $15.9 million and sold 1.04 million shares for $43.5 million, according to Thomson Financial data.

The options carried exercise prices ranging from $11.27 to $27.51 and the shares were sold on the open market from $35 to $43 each.

The senior Barnes & Noble executives selling stock included: Joseph Lombardi, chief financial officer; Mitchell Klipper, chief operating officer; Alan Kahn, president of the Barnes & Noble Publishing Group; Mark Bottini, vice president and director of stores; and Michelle Smith, vice president of human resources.

Two long-time directors also sold some stock: William Sheluck, Jr., CEO of Nationar, a New York State-chartered commercial bank providing services to financial institutions and corporations; and Matthew A. Berdon, senior partner of the financial-consulting firm F. B. & Co.

Based on Thomson Financial data, Kahn is considered one of the more timely sellers at the company as Barnes & Noble stock has fallen an average of 12% in the six months following his previous nine sales.

In late August, Kahn spent $922,400 to acquire 57,300 shares through options, which he then sold for $2.05 million on the open market.

Due to SEC regulations, an insider cannot buy company shares and then sell them within a six-month period, or vice versa.

Moreland says it would be a bullish signal if they decided to exercise options and hold on to them, or just sold enough stock to cover taxes.

Barnes & Noble insiders own roughly 31% of the company's outstanding shares while institutional investors hold 69%, or 46.9 million shares, says Joshua Hong, director of research at OwnershipAnalyzer.com, based on data at the end of the second quarter.

Notably, Pershing Square Capital Management, the hedge fund run by William Ackman, is the top institutional holder at both Barnes & Noble (6.54 million shares, or a 10.1% stake) and Borders (6.86 million shares, or an 11.8% stake).

The insider profile is starkly different at Borders. Insiders own 1.7% of the company's 58.6 million outstanding shares and institutions hold 123% thanks to the high short interest that can lead to shares being counted twice by both the borrower and the owner of the security.

More than half of Borders shares held by institutions are controlled by holders who consider the stock a longer-term sector play. But the lack of upside surprises and persistent short interest clearly indicates more speculative interest than Barnes & Noble, says Hong.

Riggio's ownership, if not his recent purchases, offers comfort regarding the stability of the stock, says Hong.