2 Tech Stocks With Recent Intensive Insider Selling

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 |  Includes: PMCS, WDAY, XLK
by: Markus Aarnio

The Technology Select Sector SPDR ETF (NYSEARCA:XLK) was trading as low as $13.08 in March 2009. The index is currently trading at $31.18, or 138.4% above the low made in March 2009.

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In this article, I will feature two tech stocks that have seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

1. Workday (NYSE:WDAY) provides enterprise cloud-based applications for enterprises in the United States and internationally.

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Insider selling by insider (last 30 days)

  • Michael Stankey sold 53,376 shares on June 11 - July 1 pursuant to a Rule 10b5-1 trading plan. Michael Stankey currently controls 403,175 shares and 1,763,658 options or 1.3% of the company. Michael Stankey is president and chief operating officer at Workday.
  • James Shaughnessy sold 2,000 shares on July 1 pursuant to a Rule 10b5-1 trading plan. James Shaughnessy currently holds 188,000 options or 0.1% of the company. James Shaughnessy is vice president, general counsel and secretary at Workday.
  • Michael McNamara sold 28,165 shares on June 24 and currently holds 135,000 shares or less than 0.1% of the company. Michael McNamara has served on Workday's board of directors since 2011.
  • George Still sold 5,000 shares on June 18 and currently controls 44,000 shares or less than 0.1% of the company. George Still has served on the board of directors at Workday since 2009.
  • Aneel Bhusri sold 15,000 shares on June 10 pursuant to a Rule 10b5-1 trading plan. Aneel Bhusri currently controls 45,000 shares or less than 0.1% of the company. Aneel Bhusri is chairman, co-founder and co-CEO at Workday.

Insider selling by calendar month

Here is a table of Workday's insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
July 2013 15,344 0
June 2013 90,197 0
May 2013 15,000 0
April 2013 185,396 0
March 2013 0 0
February 2013 0 0
January 2013 0 0
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There have been 305,937 shares sold and there have been zero shares purchased by the insiders this year.

Financials

The company reported the fiscal 2014 first-quarter, which ended April 30, financial results on May 22 with the following highlights:

Revenue $91.6 million
Net loss $33.0 million
Cash $805.8 million
Debt $21.3 million
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Outlook

Workday's second quarter revenues are expected to be in the range of $97 million and $101 million or growth of 55-61% as compared to the prior year. Total revenues for the year are anticipated to be in the range of $425 million and $440 million or growth of 55-61%.

Competition

Workday's competitors include Automatic Data Processing (NASDAQ:ADP), Oracle (NASDAQ:ORCL) and SAP AG (NYSE:SAP). Here is a table comparing these companies.

Company WDAY ADP ORCL SAP
Market Cap: 11.33B 34.33B 144.43B 84.39B
Employees: 1,950 57,000 N/A 64,598
Qtrly Rev Growth (yoy): 0.61 0.07 0.00 0.08
Revenue: 308.48M 11.17B 37.18B 21.33B
Gross Margin: 0.58 0.49 0.81 0.72
EBITDA: -98.47M 2.41B 17.36B 7.22B
Operating Margin: -0.39 0.19 0.39 0.28
Net Income: -132.52M 1.40B 10.92B 3.75B
EPS: -1.23 2.94 2.26 3.15
P/E: N/A 24.06 13.80 22.49
PEG (5 yr expected): -1.84 2.50 1.00 1.43
P/S: 36.65 3.05 3.82 3.96
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Workday has the highest P/S ratio among these four companies.

My analysis

There have been five different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. The company has a book value of $3.40 per share. The stock has a $58 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $58 target price. I would place a stop loss at $70, which is the all time high. The three main reasons for the proposed short entry are negative earnings, high P/S ratio and the intensive insider selling activity.

2. PMC-Sierra (NASDAQ:PMCS) designs, develops, markets, and supports semiconductor solutions for communications network infrastructure in North America, Europe, and Asia.

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Insider selling by insider (last 30 days)

  • Michael Zellner sold 200,000 shares on June 13-26 and currently holds 62,044 shares or less than 0.1% of the company. Michael Zellner is a former Vice President Finance.
  • Ra'ed Elmurib sold 16,150 shares on June 7 and currently holds 60,462 shares or less than 0.1% of the company. Ra'ed Elmurib is Vice President, Corporate Development and General Manager, Microprocessor Products Division.
  • Alinka Flaminia sold 25,000 shares on June 6 and currently holds 101,094 shares and 50,000 options or less than 0.1% of the company. Alinka Flaminia has served as PMC-Sierra's Vice President and General Counsel since January 2007 and was appointed Secretary in February 2007.

Insider selling by calendar month

Here is a table of PMC-Sierra's insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
June 2013 250,511 0
May 2013 0 0
April 2013 0 0
March 2013 0 0
February 2013 18,533 0
January 2013 0 0
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There have been 269,044 shares sold and there have been zero shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on April 25 with the following highlights:

Revenue $125.2 million
Net loss $6.8 million
Cash $106.9 million
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Outlook

The company expects Q2 revenues to be up 1% to 7% or in the range of $126.5 million to $134 million.

Competition

PMC-Sierra's competitors include Applied Micro Circuits (NASDAQ:AMCC), Broadcom (BRCM) and Marvell Technology Group (NASDAQ:MRVL). Here is a table comparing these companies.

Company PMCS AMCC BRCM MRVL
Market Cap: 1.33B 624.58M 19.28B 5.92B
Employees: 1,546 649 11,300 7,259
Qtrly Rev Growth (yoy): -0.05 0.16 0.11 -0.08
Revenue: 524.06M 195.64M 8.01B 3.11B
Gross Margin: 0.71 0.58 0.49 0.53
EBITDA: 66.30M -47.85M 1.23B 400.09M
Operating Margin: 0.00 -0.32 0.10 0.08
Net Income: -275.69M -134.12M 822.00M 265.25M
EPS: -1.32 -2.06 1.43 0.49
P/E: N/A N/A 23.67 24.60
PEG (5 yr expected): 1.59 6.26 0.77 1.42
P/S: 2.49 3.15 2.38 1.89
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PMC-Sierra has the second highest P/S ratio among these four companies.

My analysis

There have been three different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. The company has an insider ownership of 0.80%. There are two analyst buy ratings, six neutral ratings and two sell ratings with an average target price of $6.43. The stock is trading at a forward P/E ratio of 12.70 and the company has a book value of $3.18 per share. The stock has a $4 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $4 target price. I would place a stop loss at $7, which is the 52-week high. The three main reasons for the proposed short entry are negative earnings, bearish analyst target prices and the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in PMCS, WDAY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.