Cue up the dolorous piano music, dim the lights, and mind those loose floorboards! We're about to discuss a topic that sends shivers up the spines of even the bravest, most intrepid investors. As everyone knows, insiders sell stock for a variety of reasons: raising cash for a down payment on a new home, a fancy sports car that’s caught their eye, or to set aside funds for a child’s college education, to name but a few. However, when multiple executives at a company significantly pare their holdings, it can be a warning sign. The following companies experienced some of the more significant insider selling over the last few weeks.
Facebook (NASDAQ:FB)
Executives at the social media giant have been aggressively selling shares as the stock has declined from a recent all-time high of $96.95 on July 20, leading one to question whether they really “like” the stock. Director Peter Thiel heads the list with a $100 million sale of 1.07 million Facebook shares on August 11th. The sale represents half his holdings. He was joined by two other insiders. VP of Marketing David Fischer sold 25,000 shares at an average price of $94.65 on August 19th. He’s dumped a total of 121,250 shares in the space of three months to reduce his holdings by nearly a third. CFO David Wehner sold 8,072 shares on August 20th, which represents 28% of his holdings. VP Colin Stretch and Director Susan-Desmond Hellmond also trimmed their holdings this past week although the amounts were not that significant.
Finally, there was an option transaction worth mentioning. When insiders suddenly liquidate a large portion of their options, it can often be a red flag. For example, had you noticed the CEO of Celladon selling roughly 60% of her vested options (that didn’t expire until 2023) in the weeks leading up to the release of Phase II trial data for the company’s heart failure drug, you could have avoided a lot of pain when the shares collapsed over 80% on the release of disappointing trial results.
I mention this because Facebook’s CTO, Michael Schroepfer, increased the bi-weekly sale authorization in his Rule 10b5-1 plan from 25,000 to 100,000 Class A options. Since July 1st, he’s sold a grand total of 375,000 Jan 2019 Class A options for total net proceeds of $33.6 million dollars. These are already 100% vested and Mr. Schroepfer also owns options with more distant expiration dates in 2020 and 2022 but that doesn’t explain the urgency in selling options that have over 3 years left until expiration. The sales represented a sizeable 34% reduction in his holdings of the Class A and B Jan 2019 options. Either he needed the cash for a down payment on the Taj Majal or he doesn’t appear to be confident the company’s shares will appreciate over the next 3 years. With a P/S ratio approaching 17, Facebook’s stock may be vulnerable if the company fails to maintain its high growth rate or the market suffers a major correction.
World Wrestling Entertainment (NYSE:WWE)
The wrestling media stock is down 18% since hitting a 52-week high on August 5th. Several executives at the company aren’t pinning their hopes on a rebound and have been selling their shares lately. Michael Luisi, the President of WWE Studios, led the charge, selling 29,894 shares in the month of August for a take-down of $631,792. He swapped 25,000 of them for shares of an exchange fund, an investment vehicle that allows holders of large amount of a single stock to diversify into a basket of other stocks while avoiding an immediate taxable event. The sales reduced his holdings in WWE by just over 40%. He was joined by Chief Marketing Officer Michelle Wilson, who sold 25,000 shares, reducing her holdings by almost 30%; Executive Producer Kevin Dunn, who sold 40,000 shares, reducing his stake in the company by almost 20%; and Mark Kowal, who sold 6,000 shares, which trimmed his holdings by nearly a third. Chief Brand Officer Stephanie Levesque, the daughter of founder Vince McMahon, was also a large seller, liquidating 174,069 shares last month.
However, if you include the B shares she hasn’t yet converted, this represents just 7.1% of her entire holdings. WWE recorded 17% YoY growth in revenues in the second quarter and a healthy 31% growth in paid subscribers, so it’s doubtful the company remains on the mat for long. Insiders may be just taking profits after a healthy run this year that saw the company’s shares appreciate 52%.
Fortinet (NASDAQ:FTNT)
Fortinet’s stock has ridden a positive wave of publicity for internet security providers generated by a series of high-profile hacker attacks. However, insiders have been selling en masse near the stock’s 52-week highs. CFO Andrew Del Matto sold 3,250 shares at an average price of $41.32 on September 1st. He’s now sold 9,750 shares of the stock for over $297,000 in the last three months, reducing his holdings by just over 45%. Even more disconcerting are the sales by Chief Accounting Officer Keith Jensen, who sold 751 shares at an average price of $45.97 on Aug. 20. He has now dumped 99% of his holdings since selling 3,900 shares for $190,487 back on August 5th.
Finally, while the dollar amount was insignificant, the 212 shares sold on the open market August 18th by VP of Corporate Development John Whittle extinguished his holdings in the company. Given the infectious insider selling over the course of the past month, investors in Fortinet must hope there’s not a major breach in the price of the security. Trading at 8.2 times sales and a forward P/E of 59, the stock could be vulnerable in a market downturn.
2U, Inc. (NASDAQ:TWOU)
Insiders have been active sellers of this provider of cloud-based software for non-profit educational institutions. Director Michael Moe recently sold 344,672 shares at an average price of $34.34. He sold over 1.3 million shares in the month of August alone, entirely liquidating his holdings. Chief Impact Officer James Shelton joined him, selling over 52% of his stake in the company on August 11th to raise over $875,000. Finally, President and COO Robert Cohen sold 20,000 shares out of his trust on September 1st. He has now sold 80,000 shares in the last three months, representing 15% of his stake in the company. 2U is richly valued at 11x sales with negative earnings, EBITDA, and cash flow. The stock is up 77% YTD but the rash of insider selling suggests investors might want to do their homework before buying any shares.
Semtech Corporation (NASDAQ:SMTC)
This one’s probably flying under the radar as the dollar amounts aren’t huge but the cluster of insider selling late in August is worrisome. VP Mark Costello jettisoned his remaining 4,295 shares for $69,888 on the 24th, followed three days later by Senior VP Sharon Faltemier, who sold 7,500 shares for proceeds of $124,262. The sale was notable since it represented 99% of her entire stake in the company. VP Roger Levinson joined them, paring his holdings by 2,000 shares or roughly 40%. Revenue growth has been sluggish at the manufacturer of analog and mixed-signal semiconductors, so the recent wave of insider selling raises the possibility that the company’s attempts at a turnaround may end up short-circuiting.