What happened

Before today, the dog days of summer had taken a big bite out of shares of Kopin (KOPN -2.10%). From the start of the month through yesterday, the semiconductor manufacturer's stock had plunged 20%. Today, however, shares are headed back north as investors respond to an insider transaction.

As of 10:21 a.m. EDT, Kopin's stock is up 12.5%.

Smiling women work on a computer.

Image source: Getty Images.

So what

In an SEC filing made public yesterday, Kopin revealed that the company's president and CEO, John Fan, had bought 50,000 shares of the company's stock at $5.45 for a total of $272,500. While executives may sell stock for a variety of reasons, they primarily buy shares based on the belief that the stock will rise in the future. For this reason, investors pay close attention to insider transactions like this and recognize them as encouraging signs that the stock may be poised to bounce higher.

Shares of Kopin had tumbled earlier in the month after the company reported disappointing Q2 2021 results, failing to meet analysts' sales and earnings estimates. Although Kopin failed to please investors with the report, Fan's decision to pick up 50,000 shares is nonetheless suggesting to investors that the company's woes are temporary. 

Now what

Although it's certainly noteworthy when insiders buy stock, it's important to recognize that blindly following their lead is a risky proposition. It's important for investors to perform their own due diligence and determine if an investment is warranted based on the company's fundamentals and other factors -- especially in the case of small-cap stocks like this one. In Kopin's case, for example, it has failed to report an annual profit over the past 10 years, and it has reported negative operating cash flow on an annual basis for the past eight years.