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

The technology sector has been the second worst performing group over the recent six month period with a gain of just 1.8%.

(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. ServiceNow (NOW) provides cloud-based services to automate enterprise information technology [IT] operations worldwide.

(click to enlarge)

Insider selling by insider (last 30 days)

  • John Moores sold 41,398 shares on February 13 and currently holds 453,587 shares or 0.4% of the company. John Moores serves as a director of the company.
  • Paul Barber sold 41,398 shares on February 13 and currently holds 306,630 shares or 0.2% of the company. Paul Barber has served on the board of directors since June 2005.
  • Charles Noell sold 41,398 shares on February 13 and currently holds 671,511 shares or 0.5% of the company. Charles Noell has served on the board of directors since February 2012.
  • Frederic Luddy sold 465,000 shares on February 1-14 pursuant to a Rule 10b5-1 trading plan. Frederic Luddy currently controls 11,360,709 shares or 9.1% of the company. Frederic Luddy has served as ServiceNow's Chief Product Officer since May 2011, after having founded ServiceNow in June 2004.
  • Michael Scarpelli sold 20,000 shares on February 13-14 pursuant to a Rule 10b5-1 trading plan. Michael Scarpelli currently holds 277,308 shares or 0.2% of the company. Michael Scarpelli has served as ServiceNow's Chief Financial Officer since August 2011.
  • Frank Slootman sold 45,000 shares on February 1-5 and currently controls 137,500 shares or 0.1% of the company. Frank Slootman has served as ServiceNow's President and Chief Executive Officer, and as a director, since May 2, 2011.
  • David Schneider sold 55,000 shares on February 5 pursuant to a Rule 10b5-1 trading plan. David Schneider currently holds 1,500 shares or less than 0.1% of the company. David Schneider has served as ServiceNow's Senior Vice President of Worldwide Sales and Services since June 2011.
  • Daniel McGee sold 345,000 shares on February 1 pursuant to a Rule 10b5-1 trading plan. Daniel McGee currently holds 638 shares or less than 0.1% of the company. Daniel McGee has served as ServiceNow's Senior Vice President of Engineering since August 2011.
  • Arne Josefsberg sold 50,000 shares on February 1 pursuant to a Rule 10b5-1 trading plan. Arne Josefsberg currently holds 34,656 shares or less than 0.1% of the company. Arne Josefsberg has served as ServiceNow's Chief Technology Officer since September 2011.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
February 20131,104,1940
January 201300
December 201200
November 201214,202,5000
October 201200
September 201200
August 201200
July 2012397,5000
June 20122,650,000337,500

February 2013 has been the highest insider selling month since November 2012.

Financials

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

Revenue$243.7 million
Net loss$37.3 million
Cash$314.7 million

Outlook

For the first quarter of 2013, the company expects:

  • Total revenues between $81.5 million and $82.5 million, representing sequential growth between 8% and 10%. The company's total first quarter revenues estimate consists of subscription revenues between $69 million and $69.5 million and professional services and other revenues between $12.5 million and $13 million.
  • Subscription gross margin between 73% and 74%, professional services and other gross margin between 0% and 4%, and overall gross margin between 62% and 63%.
  • Operating margin between (4%) and (2%).
  • A loss per basic and diluted share between $0.05 and $0.04 with weighted-average shares outstanding of approximately 129 million.

For the full year 2013 the company expects revenues to be in the range of $387 million to $392 million, representing year-over-year growth between 59% and 61%. The company's total annual revenues estimate consists of subscription revenues between $327 million and $329 million and professional services and other revenues between $60 million and $63 million.

Competition

ServiceNow's competitors include BMC Software (BMC), CA Technologies (CA) and International Business Machines (IBM). Here is a table comparing these companies.

CompanyNOWBMCCAIBMIndustry Average (Information Technology Services)
Market Cap:4.20B5.91B11.42B225.10B286.26M
Employees:N/A6,90013,600N/A2.00K
Qtrly Rev Growth (yoy):0.300.06-0.05-0.010.08
Revenue:243.71M2.20B4.68B104.51B494.92M
Gross Margin:0.570.730.860.480.29
EBITDA:-24.08M608.20M1.69B26.22B27.96M
Operating Margin:-0.150.210.300.210.06
Net Income:-37.66M329.00M914.00M16.60BN/A
EPS:-0.512.061.9714.370.22
P/E:N/A20.1012.7413.9912.43
PEG (5 yr expected):-65.761.011.301.211.17
P/S:16.732.702.452.140.66

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

My analysis

There have been 11 insider sell transactions and there have not been any insider buy transactions during the last 30 days. There are six analyst buy ratings, four neutral ratings and 0 sell ratings, with a average target price of $31.50. The company has a book value of $1.97 per share. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The four main reasons for the proposed short entry are high P/S ratio, negative earnings, bearish analyst target prices and the intensive insider selling activity.

2. Cabot Microelectronics Corporation (CCMP) engages in the development, manufacture, and sale of polishing slurries and pads used in the manufacture of advanced integrated circuit [IC] devices within the semiconductor industry in the United States, Asia, and Europe.

(click to enlarge)

Insider selling by insider (last 30 days)

  • Thomas Roman sold 5,440 shares on February 13-14 and currently holds 12,496 shares or less than 0.1% of the company. Thomas Roman has served as Corporate Controller and Principal Accounting Officer since February 2004.
  • Daniel Pike sold 52,063 shares on February 4-5 and currently holds 58,943 shares or 0.3% of the company. Daniel Pike has served as Vice President of Corporate Development since January 2004.
  • Daniel Wobby sold 31,217 shares on January 30 - February 1 and currently holds 32,329 shares or 0.1% of the company. Daniel Wobby has served as Vice President of Global Sales since June 2008.
  • Yumiko Damashek sold 7,253 shares on January 30 - February 1 and currently holds 26,692 shares or 0.1% of the company. Yumiko Damashek has served as Vice President, Japan and Operations in Asia since June 2008.
  • H. Carol Bernstein sold 48,259 shares on January 31 - February 1 and currently holds 40,561 shares or 0.2% of the company. H. Carol Bernstein has served as Vice President, Secretary and General Counsel since August 2000.
  • Robert Birgeneau sold 14,506 shares on January 29 and currently holds 13,577 shares or less than 0.1% of the company. Robert Birgeneau was elected a director of the company in March 2005.
  • John Frazee sold 10,880 shares on January 29 and currently holds 9,077 shares or less than 0.1% of the company. John Frazee was elected a director of the company in April 2000.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
February 201388,6450
January 201380,9730
December 201253,4850
November 2012156,2090
October 201200
September 201283,5290
August 201229,0000
July 201200
June 201200
May 201200
April 201200

February 2013 has been the second highest insider selling month since April 2012.

Financials

The company reported the fiscal 2013 first-quarter, which ended December 31, 2012, financial results on January 24 with the following highlights:

Revenue$106.5 million
Net income$9.7 million
Cash$169.6 million
Debt$168.4 million

Competition

Cabot's competitors include Air Products & Chemicals (APD) and E. I. du Pont de Nemours and Company (DD). Here is a table comparing these companies.

CompanyCCMPAPDDDIndustry Average (Semiconductor - Integrated Circuits)
Market Cap:818.04M18.32B43.86B416.11M
Employees:1,04220,90070,0001.04K
Qtrly Rev Growth (yoy):0.040.10-0.010.13
Revenue:432.07M9.85B35.04B203.91M
Gross Margin:0.480.270.290.46
EBITDA:92.00M2.37B6.23B16.27M
Operating Margin:0.160.150.130.05
Net Income:40.11M1.05B2.46BN/A
EPS:1.715.592.95N/A
P/E:20.9415.7915.9124.79
PEG (5 yr expected):1.571.711.981.05
P/S:1.901.871.261.56

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

My analysis

There have been 11 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 20.94 and a forward P/E ratio of 14.62. The company has a book value of $12.24 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.

3. TE Connectivity (TEL) designs and manufactures products that connect and protect the flow of power and data inside the products used by consumers and industries.

(click to enlarge)

Insider selling by insider (last 30 days)

  • Mario Calastri sold 15,000 shares on February 1-11 and currently holds 17,806 shares or less than 0.1% of the company. Mario Calastri is Senior Vice President & Treasurer.
  • Joseph Donahue sold 4,500 shares on February 1 pursuant to a Rule 10b5-1 trading plan. Joseph Donahue currently holds 29,725 shares or less than 0.1% of the company. Joseph Donahue is Executive Vice President & Chief Operating Officer of TE Connectivity and President of TE's Network Solutions segment.
  • Robert Shaddock sold 10,000 shares on January 30 and currently holds 17,290 shares or less than 0.1% of the company. Robert Shaddock is Executive Vice President & Chief Technology Officer at TE Connectivity.
  • Joan Wainwright sold 42,850 shares on January 30 and currently holds 28,501 shares or less than 0.1% of the company. Joan Wainwright is Senior Vice President of TE's Channel Business Unit and TE's Marketing & Communications organization.
  • James O'Toole sold 40,227 shares on January 28 and currently holds 0 shares of the company. James O'Toole is President of the Consumer Solutions segment of TE Connectivity.
  • Eric Resch sold 26,976 shares on January 28 and currently holds 17,943 shares or less than 0.1% of the company. Eric Resch is Senior Vice President & Chief Tax Officer.
  • Terrence Curtin sold 31,661 shares on January 28 and currently holds 40,181 shares or less than 0.1% of the company. Terrence Curtin serves as President of TE's Industrial Solutions business, which includes the Energy; Industrial; Aerospace, Defense and Marine; Medical; and Channel business units.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
February 201319,5000
January 2013151,7140
December 201200
November 2012113,7590

January 2013 has been the highest insider selling month since November 2012.

Financials

The company reported the fiscal 2013 first-quarter, which ended December 28, 2012, financial results on January 23 with the following highlights:

Revenue$3.1 billion
Net income$277 million
Cash$972 million
Debt$3.0 billion

Outlook

  • For the second quarter, the company expects net sales of $3.2 to $3.3 billion and adjusted EPS of $0.68 to $0.72. GAAP EPS are expected to be $0.50 to $0.54, including restructuring and acquisition-related charges of $0.18.
  • For the full year, the company expects net sales of $13.3 to $13.7 billion and adjusted EPS of $3.05 to $3.25. GAAP EPS are expected to be $2.79 to $2.99, including restructuring and acquisition-related charges of $0.42 and income from tax-related items of $0.16.

Competition

TE Connectivity's competitors include Alcatel-Lucent (ALU), Corning (GLW) and Molex Incorporated (MOLX). Here is a table comparing these companies.

CompanyTELALUGLWMOLXIndustry Average (Diversified Electronics)
Market Cap:17.24B3.52B18.80B4.98B151.49M
Employees:88,000N/AN/A34,2261.28K
Qtrly Rev Growth (yoy):-0.01-0.010.140.130.08
Revenue:13.25B18.70B8.01B3.58B209.87M
Gross Margin:0.310.300.420.300.25
EBITDA:2.30B534.71M2.46B616.10M10.29M
Operating Margin:0.13-0.030.180.110.03
Net Income:1.20B-2.64B1.73B278.55MN/A
EPS:2.63-0.791.151.560.05
P/E:15.63N/A11.1217.9813.19
PEG (5 yr expected):1.300.450.911.420.40
P/S:1.300.192.381.380.56

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

My analysis

There have been eight 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 15.63 and a forward P/E ratio of 11.76. The company has a book value of $19.35 per share and the stock has a 2.05% dividend yield. 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