Shares of Overstock.com (OSTK 10.34%) went up today after one of its directors increased his ownership stake in the business. The market almost always views something like this in a positive light, and that’s why Overstock was up 11% as of 2:15 p.m. ET on Monday.

A big insider buy

When directors or executives buy shares of their own company, it’s known as insider trading. Not all insider trading is illegal; insiders naturally know information before the public, and they’re allowed to buy and sell stock. And when an insider buys a stock (like Overstock director Marcus Lemonis), the market interprets this as bullish for the company.

On Oct. 27, Lemonis bought more than 40,000 shares of Overstock for $14.79 per share, bringing his total ownership stake to 147,293 shares. All told, this transaction cost Lemonis nearly $596,000. 

While the transaction took place on Friday, Lemonis didn’t file the paperwork with the Securities and Exchange Commission (SEC) until today. And that’s why Overstock is up now.

Buying into Overstock’s turnaround plan

Overstock is an e-commerce company that’s struggling right now. Revenue in the third quarter was down 19% year over year, and the company had a quarterly net loss of $63 million. However, the company acquired the Bed Bath & Beyond brand out of bankruptcy and is hoping to use it to revitalize the business.

While Bed Bath & Beyond did go bankrupt, its brand is better known than Overstock’s. The latter company’s management hopes that it can use the better branding to stimulate sales, and it hopes to achieve better profitability through operational discipline. It would seem that Lemonis is very optimistic about the revitalized strategy, and it’s giving investors reason for excitement as well.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Overstock.com. The Motley Fool has a disclosure policy.

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