Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message|
( followers)  

The technology sector has been the second worst performing group in the year to date performance with a 3.9% gain.

(click to enlarge)For this article, I screened for technology stocks which have seen recent intensive insider selling. 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 percent.

In this article, I will feature three technology sector stocks that met these three criteria of intensive insider selling in the last 30 days.

1. LinkedIn Corporation (LNKD) operates an online professional network. The company, through its proprietary platform, allows members to create, manage, and share their professional identity online; build and engage with their professional networks; access shared knowledge and insights; and find business opportunities.

(click to enlarge)

Insider selling by insider (last 30 days)

  • David Henke sold 17,708 shares on February 5 pursuant to a Rule 10b5-1 trading plan. David Henke currently holds 35,758 shares or less than 0.1% of the company. David Henke is Senior Vice President, Operations.
  • Jeff Weiner sold 74,000 shares on January 14 - February 4 pursuant to a Rule 10b5-1 trading plan. Jeff Weiner currently holds 89,073 shares or less than 0.1% of the company. Jeff Weiner is the CEO of LinkedIn.
  • Reid Hoffman sold 166,668 shares on January 14 - February 4 pursuant to a Rule 10b5-1 trading plan. Reid Hoffman currently holds 17,406,573 shares or 16.3% of the company. Reid Hoffman is Executive Chairman and a co-founder of LinkedIn.
  • David Sze sold 31,874 shares on January 22 - February 4 pursuant to a Rule 10b5-1 trading plan. David Sze currently holds 425,494 shares or 0.4% of the company. David Sze became a board member of LinkedIn in September 2004.
  • Michael Gamson sold 50,782 shares on January 15 - February 1 pursuant to a Rule 10b5-1 trading plan. Michael Gamson currently holds 120,758 shares or 0.1% of the company. Michael Gamson is Senior Vice President, Global Solutions.
  • Deep Nishar sold 64,625 shares on February 1 pursuant to a Rule 10b5-1 trading plan. Deep Nishar currently holds 50,120 shares or less than 0.1% of the company. Deep Nishar is Senior Vice President, Products and User Experience.
  • Leslie Kilgore sold 1,500 shares on January 28 pursuant to a Rule 10b5-1 trading plan. Leslie Kilgore currently holds 75,251 shares or less than 0.1% of the company. Leslie Kilgore has served on LinkedIn's board of directors since March 2010.
  • Steven Sordello sold 10,000 shares on January 8 pursuant to a Rule 10b5-1 trading plan. Steven Sordello currently holds 275,324 shares or 0.3% of the company. Steven Sordello is Senior Vice President and Chief Financial Officer.
  • Kevin Scott sold 6,250 shares on January 8 pursuant to a Rule 10b5-1 trading plan. Kevin Scott currently holds 35,299 shares or less than 0.1% of the company. Kevin Scott is Senior Vice President, Engineering.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
February 2013220,6360
January 2013427,6250
December 2012449,0300
November 2012258,3740
October 2012165,3840

There have been 2,160,670 shares sold and 0 shares purchased during the past six months.

Financials

The company reported the full year 2012 financial results on February 7 with the following highlights:

Revenue$972.3 million
Net income$21.6 million
Cash$749.5 million

Outlook

  • Q1 2013 Guidance: Revenue for the first quarter of 2013 is projected to range between $305 million to $310 million. The company expects adjusted EBITDA to range between $67 million and $69 million.
  • Full Year 2013 Guidance: The company expects revenue in the range of $1.41 billion to $1.44 billion. The company expects adjusted EBITDA to range between $315 million to $330 million.

Competition

LinkedIn's competitors include Facebook (FB) and Monster Worldwide (MWW). Here is a table comparing these companies.

CompanyLNKDFBMWWIndustry Average (Internet Information Providers)
Market Cap:16.24B68.00B594.37M236.78M
Employees:N/A4,6194,037358.00
Qtrly Rev Growth (yoy):0.810.40-0.160.20
Revenue:972.31M5.09B890.39M139.72M
Gross Margin:0.870.731.000.59
EBITDA:130.93M1.19B137.16M15.60M
Operating Margin:0.060.110.080.05
Net Income:21.61M32.00M58.17MN/A
EPS:0.190.02-2.270.03
P/E:792.001,903.00N/A25.23
PEG (5 yr expected):1.881.722.891.25
P/S:13.7713.410.682.54

LinkedIn is trading above the industry average P/S ratio, which could explain some of the insider selling.

My analysis

There have been 14 insider sell transactions and there have not been any insider buy transactions during the last 30 days. The stock is trading at a P/E ratio of 792.00 and a forward P/E ratio of 115.75. The company has a book value of $7.73 per share. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The three main reasons for the proposed short entry are high P/S ratio, high P/E ratio and the intensive insider selling activity.

2. Facebook operates as a social networking company worldwide.

(click to enlarge)

Insider selling by insider (last 30 days)

  • Sheryl Sandberg sold 529,355 shares on January 16 - February 4 pursuant to a Rule 10b5-1 trading plan. Sheryl Sandberg currently holds 16,197,2547 shares or 0.7% of the company. Sheryl Sandberg is Chief Operating Officer at Facebook.
  • Donald Graham sold 8,124 shares on February 4 pursuant to a Rule 10b5-1 trading plan. Donald Graham currently holds 648,747 shares or less than 0.1% of the company. Donald Graham has served as a member of board of directors since March 2009.
  • David Ebersman sold 173,400 shares on February 4-5 pursuant to a Rule 10b5-1 trading plan. David Ebersman currently holds 2,227,981 shares or 0.1% of the company. David Ebersman is the Chief Financial Officer of Facebook.
  • James Breyer sold 2,521,778 shares on February 1-4 pursuant to a Rule 10b5-1 trading plan. James Breyer currently controls 9,166,654 shares or 0.4% of the company. James Breyer has served as a member of board of directors since April 2005.
  • Michael Schroepfer sold 219,998 shares on January 7-28 pursuant to a Rule 10b5-1 trading plan adopted on August 8, 2012. Michael Schroepfer currently holds 1,359,282 shares or less than 0.1% of the company. Michael Schroepfer is Vice President, Engineering at Facebook.
  • Theodore Ullyot sold 119,630 shares on January 7-29 pursuant to a Rule 10b5-1 trading plan adopted on August 1, 2012. Theodore Ullyot currently holds 788,688 shares or less than 0.1% of the company. Theodore Ullyot is Vice President, General Counsel & Secretary at Facebook.
  • David Fischer sold 24,000 shares on January 8-9 pursuant to a Rule 10b5-1 trading plan. David Fischer currently holds 559,170 shares or less than 0.1% of the company. David Fischer is Vice President Marketing at Facebook.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
February 20132,879,7540
January 2013931,1420
December 20121,454,0920
November 20123,427,9900
October 20124,321,3660
September 20125,700,0000
August 201221,858,0680

From this table we can see that the insider selling has picked up again in February 2013.

Financials

The company reported the full year 2012 financial results on January 30 with the following highlights:

Revenue$5.1 billion
Net income [GAAP]$53 million
Net income [non-GAAP]$1.3 billion
Monthly active users$1.1 billion
Cash$9.6 billion
Debt$1.5 billion

Competition

Facebook's competitors include Google (GOOG) and Microsoft (MSFT). Here is a table comparing these companies.

CompanyFBGOOGMSFTIndustry Average (Internet Information Providers)
Market Cap:68.00B258.91B230.77B236.78M
Employees:4,61953,86194,000358.00
Qtrly Rev Growth (yoy):0.400.360.030.20
Revenue:5.09B50.18B72.93B139.72M
Gross Margin:0.730.590.750.59
EBITDA:1.19B16.28B28.87B15.60M
Operating Margin:0.110.270.350.05
Net Income:32.00M10.79B15.46BN/A
EPS:0.0232.211.820.03
P/E:1,903.0024.3815.1425.23
PEG (5 yr expected):1.721.251.141.25
P/S:13.415.093.132.54

Facebook is trading above the industry average P/S ratio, which could explain some of the insider selling.

My analysis

There have been 10 insider sell transactions and there have not been any insider buy transactions during the last 30 days. The stock is trading at a P/E ratio of 1,903.00 and a forward P/E ratio of 36.13. The company has a book value of $6.54 per share. I believe there is an opportunity for a short entry. I would place a stop loss at $45, which is the all time high. The three main reasons for the proposed short entry are high P/S ratio, high P/E ratio and the intensive insider selling activity.

3. EPAM Systems (EPAM) primarily provides software product development services to independent software vendors and technology companies worldwide.

(click to enlarge)

Insider selling by insider (last 30 days)

  • Arkadiy Dobkin sold 72,418 shares on January 11 - February 4 pursuant to a Rule 10b5-1 trading plan. Arkadiy Dobkin currently controls 4,570,408 shares or 10.5% of the company. Arkadiy Dobkin is the co-founder, CEO and President of EPAM Systems.
  • Karl Robb sold 123,297 shares on January 11 - February 4 pursuant to a Rule 10b5-1 trading plan. Karl Robb currently holds 223,415 shares or 0.6% of the company. Karl Robb became Executive Vice President of Global Operations and a member of the Board of Directors of EPAM in 2004.
  • Ilya Cantor sold 26,190 shares on January 11 - February 4 pursuant to a Rule 10b5-1 trading plan. Ilya Cantor currently holds 20,000 shares or less than 0.1% of the company. Ilya Cantor joined EPAM Systems in July 2006 as Chief Financial Officer.
  • Balazs Fejes sold 35,080 shares on January 7-28 pursuant to a Rule 10b5-1 trading plan. Balazs Fejes currently controls 414,879 shares or 1.0% of the company. Balazs Fejes is Global Head of Banking and Financial Services Industry Business Unit.

Insider selling by calendar month

Here is a table of EPAM Systems' insider trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
February 2013104,2480
January 2013197,0800
December 201269,1790
November 2012431,7160
October 2012256,7220

From this table we can see that the insider selling has picked up again after slow December 2012.

Financials

The company reported the third-quarter financial results on November 8 with the following highlights:

Revenue$110.1 million
Net income$14.1 million
Cash$105.9 million

Outlook

  • Fourth quarter 2012 revenues are expected to be in the range of $115 million to $118 million.
  • Fourth quarter 2012 non-GAAP diluted EPS is expected to be in the range of $0.35 to $0.37. These non-GAAP diluted EPS estimates are based on an estimated 2012 fiscal year weighted average of 47.4 million diluted shares.
  • Full year 2012 revenues are expected to be between $423 million and $426 million, with non-GAAP net income growth in the range of 18% to 20%.

Competition

EPAM Systems' competitors include Cognizant Technology Solutions (CTSH) and Infosys (INFY). Here is a table comparing these companies.

CompanyEPAMCTSHINFYIndustry Average (Information Technology Services)
Market Cap:935.35M23.65B29.94B288.20M
Employees:8,125156,700155,6292.00K
Qtrly Rev Growth (yoy):0.270.170.060.08
Revenue:403.39M7.35B7.23B474.48M
Gross Margin:0.370.420.380.28
EBITDA:73.37M1.52B2.18B27.51M
Operating Margin:0.160.190.270.06
Net Income:45.60M1.05B1.74BN/A
EPS:1.193.443.050.23
P/E:18.1422.8917.1813.06
PEG (5 yr expected):0.761.111.271.10
P/S:2.323.214.120.65

EPAM Systems is trading above the industry average P/S ratio, which could explain some of the insider selling.

My analysis

There have been 20 insider sell transactions and there have not been any insider buy transactions during the last 30 days. The stock is trading at a P/E ratio of 18.14 and a forward P/E ratio of 13.52. The company has a book value of $6.11 per share. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are relatively high P/S ratio and the intensive insider selling activity.

Source: 3 Technology Stocks With Recent Intensive Insider Selling