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There was intensive insider selling in SolarWinds (NYSE:SWI) in late March to early April time period when the stock was trading above $58. The stock is currently trading at $45.70 or 26% below the all time high made in March.


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With this episode in mind, I screened for 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%.

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

1. Zynga (NASDAQ:ZNGA) develops, markets, and operates online social games as live services on the Internet, social networking sites, and mobile platforms in the United States and internationally.


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Insider selling by insider (last 30 days)

  • Mark Vranesh sold 129,663 shares on April 16 - May 1 pursuant to a Rule 10b5-1 plan. Mark Vranesh currently controls 676,892 shares or less than 0.1% of the company. Mark Vranesh is Chief Financial Officer of Zynga.
  • David Ko sold 69,375 shares on May 2 pursuant to a Rule 10b5-1 plan. David Ko currently holds 572,889 shares or less than 0.1% of the company. David Ko is Chief Operations Officer of Zynga.
  • Jeffrey Katzenberg sold 49,500 shares on May 1 pursuant to a Rule 10b5-1 plan. Jeffrey Katzenberg currently controls 140,910 shares or less than 0.1% of the company. Jeffrey Katzenberg has served on Zynga's Board since February 2011.
  • Barry Cottle sold 117,803 shares on April 16-29 pursuant to a Rule 10b5-1 plan. Barry Cottle currently holds 7,197 shares or less than 0.1% of the company. Barry Cottle is Chief Revenue Officer of Zynga.
  • Stanley Meresman sold 3,750 shares on April 30 pursuant to a Rule 10b5-1 plan. Stanley Meresman currently controls 26,250 shares or less than 0.1% of the company. Stanley Meresman has served on the Board since June 2011.
  • Cadir Lee sold 50,012 shares on April 9-10 pursuant to a Rule 10b5-1 plan. Cadir Lee currently holds 602,317 shares or less than 0.1% of the company. Cadir Lee is Chief Technology Officer of Zynga.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
May 2013 243,875 0
April 2013 350,728 0
March 2013 327,436 0
February 2013 523,728 0
January 2013 332,464 0

There have been 1,778,231 shares sold and zero shares purchased this year.

Financials

The company reported the first-quarter financial results on April 24 with the following highlights:

Revenue $263.6 million
Net income $4.1 million
Cash $1.7 billion

Outlook

Zynga's outlook for the second quarter of 2013 is as follows:

  • Revenue is projected to be in the range of $225 million to $235 million.
  • Net loss is projected to be in the range of $36.5 million to $26.5 million.
  • EPS is projected to be in the range of ($0.05) to ($0.03), based on a share count of approximately 785 million to 795 million shares.
  • Bookings are projected to be in the range of $180 million to $190 million.
  • Adjusted EBITDA is projected to be in the range of ($10) million to break even.
  • Non-GAAP EPS is projected to be in the range of ($0.04) to ($0.03), based on a share count of approximately 785 million to 795 million shares.

For full year 2013:

  • Adjusted EBITDA margin (adjusted EBITDA as a percentage of bookings) is projected to be in the range of 0% to 10%.

Competition

Zynga's competitors include DeNA Co. (OTC:DNACF) and Electronic Arts (NASDAQ:EA). Here is a table comparing these companies.

Company ZNGA DNACF EA Industry Average (Internet Information Providers)
Market Cap: 2.56B 3.80B 5.39B 219.16M
Employees: 3,058 1,810 9,200 452.00
Qtrly Rev Growth (yoy): -0.18 0.53 -0.13 0.18
Revenue: 1.22B 2.45B 3.96B 142.24M
Gross Margin: 0.73 0.74 0.64 0.59
EBITDA: 143.73M 1.05B 393.00M 14.73M
Operating Margin: -0.00 0.40 0.04 0.07
Net Income: -119.96M 561.80M 175.00M N/A
EPS: -0.16 4.02 0.55 0.05
P/E: N/A 7.01 32.82 25.93
PEG (5 yr expected): -3.81 N/A 1.39 1.27
P/S: 2.09 1.55 1.36 2.71

Zynga's P/S ratio is higher than its direct competitors'.

My analysis

There have been nine insider sell transactions and there have not been any insider buy transactions during the last 30 days. The company has a book value of $3.16 per share and the stock is currently trading at $3.22. I am not recommending in shorting this stock based on the very low P/B ratio of 1.02.

2. ResMed (NYSE:RMD) engages in the development, manufacture, and distribution of medical equipment for treating, diagnosing, and managing sleep-disordered breathing and other respiratory disorders.


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Insider selling by insider (last 30 days)

  • Brett Sandercock sold 3,300 shares on May 1 and currently holds 69,518 shares or less than 0.1% of the company. Brett Sandercock has been chief financial officer since January 1, 2006.
  • Robert Douglas sold 8,000 shares on May 1 pursuant to a 10b5-1 trading plan. Robert Douglas currently holds 97,980 shares or less than 0.1% of the company. Robert Douglas is President and Chief Operating Officer.
  • Peter Farrell sold 78,076 shares on April 30 and currently holds 742,840 shares or 0.5% of the company. Peter Farrell is founder, Chairman and CEO of ResMed.
  • Richard Sulpizio sold 12,000 shares on April 30 and currently holds 26,527 shares or less than 0.1% of the company. Richard Sulpizio has served as a director since August 2005.
  • Ronald Taylor sold 10,286 shares on April 29 and currently holds 22,175 shares or less than 0.1% of the company. Ronald Taylor has served as a director since January 2005.
  • Anne Reiser sold 30,000 shares on April 29 and currently holds 36,803 shares or less than 0.1% of the company. Anne Reiser was appointed president, Europe in March 2012.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
May 2013 11,300 0
April 2013 138,362 0
March 2013 8,000 0
February 2013 48,000 0
January 2013 447,000 0

There have been 652,662 shares sold and zero shares purchased this year.

Financials

The company reported the fiscal 2013 third-quarter, which ended March 31, financial results on April 25 with the following highlights:

Revenue $383.6 million
Net income $84.9 million
Cash $1.0 billion
Debt $340.1 million

Competition

ResMed's competitors include Covidien (NYSE:COV). Here is a table comparing these two companies.

Company RMD COV Industry Average (Medical Appliances & Equipment)
Market Cap: 6.80B 30.85B 73.70M
Employees: 3,700 43,400 250.00
Qtrly Rev Growth (yoy): 0.10 0.05 0.15
Revenue: 1.47B 12.17B 46.56M
Gross Margin: 0.62 0.57 0.58
EBITDA: 440.43M 3.29B 1.08M
Operating Margin: 0.24 0.22 0.01
Net Income: 310.97M 1.85B N/A
EPS: 2.13 3.85 N/A
P/E: 22.39 17.04 21.50
PEG (5 yr expected): 1.35 1.65 1.29
P/S: 4.64 2.49 2.55

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

My analysis

There have been six 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 22.39 and a forward P/E ratio of 19.55. The company has a book value of $12.23 per share and the stock has a dividend yield of 1.42%. 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. Northrop Grumman Corporation (NYSE:NOC) provides systems, products, and solutions in aerospace, electronics, information systems, and technical service areas to government and commercial customers worldwide.


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Insider selling by insider (last 30 days)

  • David Perry sold 5,939 shares on May 2 and currently holds 6,860 shares or less than 0.1% of the company. David Perry is corporate vice president and chief global business development officer of Northrop Grumman.
  • Linda Mills sold 45,000 shares on May 1 and currently controls 82,684 shares or less than 0.1% of the company. Linda Mills is corporate vice president of Operations for Northrop Grumman.
  • Sid Ashworth sold 9,680 shares on April 30 and currently holds 9,690 shares or less than 0.1% of the company. Sid Ashworth is corporate vice president of government relations for Northrop Grumman.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
May 2013 50,939 0
April 2013 9,680 0
March 2013 3,500 0
February 2013 0 0
January 2013 0 0

The month of May has seen the most insider selling this year.

Financials

The company reported the first-quarter financial results on April 24 with the following highlights:

Revenue $6.1 billion
Net income $489 million
Cash $3.2 billion
Debt $3.9 billion

Outlook

As of March 31, 2013, total backlog was $39.4 billion compared with $40.8 billion as of Dec. 31, 2012, and includes new awards of $4.7 billion during the first quarter of 2013. The decline in backlog and new awards is due to customer response to the current U.S. government budget environment.

For 2013, the company expects sales of approximately $24 billion, EPS of $6.85 to $7.15, cash from operations of $2.1 billion to $2.4 billion and free cash flow of $1.7 billion to $2 billion before discretionary pension contributions.

Competition

Northrop Grumman's competitors include Boeing (NYSE:BA), General Dynamics (NYSE:GD) and Lockheed Martin (NYSE:LMT). Here is a table comparing these companies.

Company NOC BA GD LMT Industry Average (Aerospace/Defence - Major Diversified)
Market Cap: 18.17B 71.61B 26.40B 32.56B 3.64B
Employees: 68,100 174,400 92,200 120,000 10.46K
Qtrly Rev Growth (yoy): -0.02 -0.03 -0.02 -0.02 0.15
Revenue: 25.12B 81.21B 31.34B 46.96B 1.61B
Gross Margin: 0.22 0.16 0.17 0.09 0.25
EBITDA: 3.59B 7.80B 3.71B 5.28B 385.44M
Operating Margin: 0.12 0.07 0.10 0.09 0.07
Net Income: 1.96B 4.08B -325.00M 2.84B N/A
EPS: 7.88 5.33 -0.92 8.66 0.40
P/E: 9.81 17.72 N/A 11.83 17.00
PEG (5 yr expected): -5.43 1.02 1.74 1.42 1.04
P/S: 0.72 0.88 0.84 0.69 0.96

Northrop Grumman is trading below the industry average P/S ratio.

My analysis

There have been three insider sell transactions and there have not been any insider buy transactions during the last 30 days. There are two analyst buy ratings, 14 neutral ratings and four sell ratings, with an average target price of $70.71. The stock is trading at a P/E ratio of 9.81 and a forward P/E ratio of 10.37. The company has a book value of $40.27 per share and the stock has a dividend yield of 2.86%. 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 bearish analyst target prices and the intensive insider selling activity.

Source: 1 Tech, 1 Healthcare And 1 Industrial Goods Company With Recent Intensive Insider Selling