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The technology sector has been the worst-performing group over the recent six-month period with a gain of just 2.6%.

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For this article, I screened for technology stocks that 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%.

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

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Insider selling by insider (last 30 days)

  • Balazs Fejes sold 51,832 shares on February 19 - March 5 pursuant to a Rule 10b5-1 trading plan. Balazs Fejes currently controls 303,049 shares or 0.7% of the company. Balazs Fejes is Global Head of Banking and Financial Services Industry Business Unit.
  • Karl Robb sold 213,407 shares on February 15 - March 11 pursuant to a Rule 10b5-1 trading plan. Karl Robb currently controls 195,597 shares or 0.3% of the company. Karl Robb became Executive Vice President of Global Operations and a member of the Board of Directors of EPAM in 2004.
  • Arkadiy Dobkin sold 39,737 shares on February 15-28 pursuant to a Rule 10b5-1 trading plan. Arkadiy Dobkin currently controls 4,521,471 shares or 10.4% of the company. Arkadiy Dobkin is the co-founder, CEO and President of EPAM Systems.
  • Ilya Cantor sold 11,567 shares on February 15-28 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.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
March 2013184,7610
February 2013270,6580
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 full year 2012 financial results on February 27 with the following highlights:

Revenue$433.8 million
Net income$51.1 million
Cash$118.1 million

Outlook

  • Based on current conditions, EPAM expects year-over-year revenue growth in the range of 23% to 25%. Non-GAAP net income growth for 2013 is expected to be in the range of 12% to 15% year-over-year, with an increase in the effective tax rate to approximately 20%.
  • For the first quarter of 2013, EPAM expects revenue between $122 million and $125 million, representing a growth rate of 29% to 31% over first quarter 2012 revenue, which includes results from two acquisitions made in 2012 that were not in the comparable period. First quarter 2013 non-GAAP diluted EPS is expected to be in the range of $0.32 to $0.34 based on an estimated first quarter 2013 weighted average of 47.6 million diluted shares.

Competition

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

CompanyEPAMCTSHINFY
Market Cap:1.04B23.68B30.23B
Employees:N/A156,700155,629
Qtrly Rev Growth (yoy):0.320.170.06
Revenue:433.80M7.35B7.23B
Gross Margin:0.380.420.38
EBITDA:76.24M1.52B2.19B
Operating Margin:0.150.190.27
Net Income:51.14M1.05B1.74B
EPS:1.173.443.05
P/E:20.0522.8117.35
PEG (5 yr expected):0.751.111.27
P/S:2.373.254.17

EPAM Systems has the lowest P/S ratio among these three companies.

My analysis

There have been 18 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 20.05 and a forward P/E ratio of 12.24. 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 main reason for the proposed short entry is the intensive insider selling activity.

2. ExactTarget (NYSE:ET) provides cross-channel, interactive marketing software-as-a-service [SaaS] solutions that enable organizations to communicate with their customers through the interactive channels, including email, mobile, social media, and Websites.

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Insider selling by insider (last 30 days)

  • Greenspring Associates sold 509,052 shares on February 22 - March 11 and currently controls 9,162,908 shares or 13.3% of ExactTarget.
  • Rory O'Driscoll sold 200,000 shares on March 11 and currently controls 1,957,821 shares or 2.9% of the company. Rory O'Driscoll serves as a director of the company.
  • John Drew sold 1,705 shares on March 8 and currently controls 7,037,899 shares or 10.2% of the company.
  • Jay Hoag sold 3,804 shares on March 5-6 and currently controls 7,002,015 shares or 10.2% of the company.
  • Traci Dolan sold 7,750 shares on March 5 pursuant to a Rule 10b5-1 plan. Traci Dolan currently holds 134,250 options or 0.2% of the company. Traci Dolan is responsible for shareholder relations, risk management, legal and corporate governance, HR, and real estate.
  • Matthew Ferguson sold 9,000 shares on March 6 and currently holds 47,819 shares or less than 0.1% of the company. Matthew Ferguson serves as a director of the company.
  • Scott McCorkle sold 26,585 shares on March 5 pursuant to a Rule 10b5-1 plan. Scott McCorkle currently holds 44,358 shares or less than 0.1% of the company. Scott McCorkle is responsible for ExactTarget's product, technology, and services, where he ensures that customers have everything they need to run successful marketing campaigns.
  • Andrew Kofoid sold 8,075 shares on March 1 pursuant to a Rule 10b5-1 plan. Andrew Kofoid currently holds 33,750 shares or less than 0.1% of the company. Andrew Kofoid leads ExactTarget's expanding network of direct, channel, and corporate sales teams located around the world.
  • Timothy Kopp sold 8,039 shares on March 1 pursuant to a Rule 10b5-1 plan. Timothy Kopp currently holds 21,250 shares or less than 0.1% of the company. Timothy Kopp is responsible for all aspects of ExactTarget's marketing including strategy, corporate marketing, and product marketing.
  • Scott Dorsey sold 75,000 shares on March 1 pursuant to a Rule 10b5-1 plan. Scott Dorsey currently holds 1,400,000 shares or 2.0% of the company. Scott Dorsey is Chief Executive Officer of the company.
  • Steven Collins sold 32,500 shares on February 14 pursuant to a Rule 10b5-1 plan. Steven Collins currently holds 337,500 options or 0.5% of the company. Steven Collins is Chief Financial Officer of the company.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
March 2013721,6190
February 2013593,9170
January 2013142,7540
December 20122,980,9450
November 201207,275
October 201210,0002,000

The month of March 2013 has seen the most insider selling since December 2012.

Financials

The company reported the full year 2012 financial results on February 21 with the following highlights:

Revenue$292.3 million
Net loss$21.0 million
Cash$109.4 million

Outlook

As of February 21, ExactTarget issued guidance for its first quarter of 2013 and full-year 2013.

First Quarter 2013:

  • Adjusted Revenue: expected to be $87.0 million to $88.0 million, excluding the impact of adjusting deferred revenue to fair value under purchase accounting.
  • Adjusted Net Loss: expected to be $6.0 million to $7.0 million. Adjusted Net Loss excludes the effects of stock-based compensation expense, amortization of intangibles, and the impact of adjusting deferred revenue to fair value under purchase accounting.
  • Adjusted Net Loss per Share: expected to be $0.09 per share to $0.10 per share on a basic and diluted basis assuming weighted average shares outstanding of approximately 69 million shares.

Full Year 2013:

  • Adjusted Revenue: expected to be $370.0 million to $374.0 million, excluding the impact of adjusting deferred revenue to fair value under purchase accounting.
  • Adjusted Net Loss: expected to be $20.0 million to $22.0 million. Adjusted Net Loss excludes the effects of stock-based compensation expense, amortization of intangibles, and the impact of adjusting deferred revenue to fair value under purchase accounting.
  • Adjusted Net Loss per Share: expected to be $0.29 per share to $0.31 per share on a basic and diluted basis. This assumes weighted average shares outstanding of approximately 70 million shares.

Competition

ExactTarget's competitors include Constant Contact (NASDAQ:CTCT). Here is a table comparing these two companies.

CompanyETCTCT
Market Cap:1.61B420.37M
Employees:1,6731,162
Qtrly Rev Growth (yoy):0.420.15
Revenue:292.27M252.15M
Gross Margin:0.650.71
EBITDA:4.07M19.78M
Operating Margin:-0.070.02
Net Income:-20.96M12.76M
EPS:-0.390.41
P/E:N/A33.41
PEG (5 yr expected):5.120.83
P/S:5.521.67

ExactTarget is trading at a higher P/S ratio than Constant Contact.

My analysis

There have been 13 insider sell transactions and there have not been any insider buy transactions during the last 30 days. The company has a book value of $4.05 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 the negative earnings and the intensive insider selling activity.

3. NetSuite (NYSE:N) provides cloud-based financials/enterprise resource planning (ERP) software suites in the United States and internationally.

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Insider selling by insider (last 30 days)

  • Evan Goldberg sold 49,115 shares on February 19 - March 11 pursuant to a Rule 10b5-1 trading plan. Evan Goldberg currently holds 2,799,261 shares or 3.8% of the company. Evan Goldberg is Founder, Chief Technology Officer and Chairman of the Board.
  • Ronald Gill sold 34,841 shares on February 19 - March 11 pursuant to a Rule 10b5-1 trading plan. Ronald Gill currently holds 42,135 shares or less than 0.1% of the company. Ronald Gill is Chief Financial Officer of the company.
  • Douglas Solomon sold 21,698 shares on February 15 - March 6 pursuant to a Rule 10b5-1 trading plan. Douglas Solomon currently holds 26,070 shares or less than 0.1% of the company. Douglas Solomon is Senior Vice President, General Counsel & Secretary.
  • James Ramsey sold 33,089 shares on February 19 - March 4 pursuant to a Rule 10b5-1 trading plan. James Ramsey currently holds 34,102 shares or less than 0.1% of the company. James Ramsey is Senior Vice President Worldwide Sales & Distribution.
  • Zachary Nelson sold 68,499 shares on February 19 - March 4 pursuant to a Rule 10b5-1 trading plan. Zachary Nelson currently holds 896,780 shares or 1.2% of the company. Zachary Nelson is President and Chief Executive Officer.
  • James McGeever sold 115,941 shares on February 14 - March 4 pursuant to a Rule 10b5-1 trading plan. James McGeever currently holds 235,305 shares or 0.3% of the company. James McGeever is Chief Operating Officer.
  • Timothy Dilley sold 15,823 shares on February 19 - March 4 pursuant to a Rule 10b5-1 trading plan. Timothy Dilley currently holds 52,349 shares or less than 0.1% of the company. Timothy Dilley is Executive Vice President, Worldwide Services and Chief Customer Officer.
  • Deborah Farrington sold 50,000 shares on February 27-28 pursuant to a Rule 10b5-1 trading plan. Deborah Farrington currently controls 432,421 shares or 0.6% of the company. Deborah Farrington serves as a director of the company.
  • William Beane sold 2,215 shares on February 25 pursuant to a Rule 10b5-1 trading plan. William Beane currently holds 6,851 shares or less than 0.1% of the company. William Beane serves as a director of the company.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
March 201347,7870
February 2013386,3320
January 201383,2150
December 2012530,5160

There have been 1,047,850 shares sold and zero shares purchased since December 2012.

Financials

The company reported the full year 2012 financial results on January 31 with the following highlights:

Revenue$308.8 million
Net loss$35.2 million
Cash$185.9 million

Outlook

For 2013, NetSuite raised its prior revenue outlook and currently expects revenues to be in the range of $397 million to $402 million. The company expects EPS in the range of $0.26 to $0.27 for 2013, which would result in operating cash flows in the range of $55 million to $60 million.

Competition

NetSuite's competitors include salesforce.com (NYSE:CRM) and SAP AG (NYSE:SAP). Here is a table comparing these companies.

CompanyNCRMSAPIndustry Average (Business Software & Services)
Market Cap:5.58B26.09B100.14B1.55T
Employees:1,7789,80164,42294.00K
Qtrly Rev Growth (yoy):0.330.320.120.00
Revenue:308.83M3.05B21.00B72.93B
Gross Margin:0.690.780.690.75
EBITDA:-16.08M106.08M6.39B28.87B
Operating Margin:-0.10-0.040.250.36
Net Income:-35.23M-270.45M3.66BN/A
EPS:-0.50-1.923.071.82
P/E:N/AN/A27.38101.65
PEG (5 yr expected):9.283.161.51N/A
P/S:17.798.604.6921.25

NetSuite is trading below the industry average P/S ratio.

My analysis

There have been 23 insider sell transactions and there have not been any insider buy transactions during the last 30 days. There are six analyst buy ratings, 12 neutral ratings and one sell rating, with an average target price of $54.62. The stock is trading at a forward P/E ratio of 174.42 and the company has a book value of $2.21 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 the negative earnings, bearish analyst target prices and the intensive insider selling activity.

Source: 3 Tech Small And Mid Caps With Recent Intensive Insider Selling