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There was intensive insider selling in Salesforce.com (NYSE:CRM) in May when the stock was trading between $42 to $47. The stock is currently trading at $37.64, or 20.9% below the all time high made in May.


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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 two technology sector 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)

  • David Ko sold 16,456 shares on May 21 - June 17 pursuant to a Rule 10b5-1 plan. David Ko currently holds 587,683 shares or less than 0.1% of the company. David Ko is Chief Operations Officer of Zynga.
  • Steven Chiang sold 153,544 shares on June 3-17 pursuant to a Rule 10b5-1 plan. Steven Chiang currently holds 589,091 shares or less than 0.1% of the company. Steven Chiang is President of Games at Zynga.
  • Mark Vranesh sold 6,250 shares on June 17 pursuant to a Rule 10b5-1 plan. Mark Vranesh currently controls 810,938 shares or 0.1% of the company. Mark Vranesh is Chief Financial Officer of Zynga.
  • Cadir Lee sold 50,014 shares on June 10 pursuant to a Rule 10b5-1 plan. Cadir Lee currently holds 602,343 shares or less than 0.1% of the company. Cadir Lee is Chief Technology Officer of Zynga.
  • Jeffrey Katzenberg sold 49,500 shares on June 3 pursuant to a Rule 10b5-1 plan. Jeffrey Katzenberg currently controls 91,410 shares or less than 0.1% of the company. Jeffrey Katzenberg has served on Zynga's Board since February 2011.
  • Stanley Meresman sold 3,750 shares on May 31 pursuant to a Rule 10b5-1 plan. Stanley Meresman currently controls 22,500 shares or less than 0.1% of the company. Stanley Meresman has served on Zynga's Board since June 2011.
  • Reginald Davis sold 510,574 shares on May 31 pursuant to a Rule 10b5-1 plan. Reginald Davis currently holds 828,436 options or 0.1% of the company. Reginald Davis is Executive Vice President, General Counsel.
  • Owen Van Natta sold 34,375 shares on May 20 pursuant to a Rule 10b5-1 plan. Owen Van Natta currently holds 307,820 shares or less than 0.1% of the company. Owen Van Natta has served on Zynga's Board since August 2010.

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
June 2013 269,200 0
May 2013 856,347 0
April 2013 350,728 0
March 2013 327,436 0
February 2013 523,728 0
January 2013 332,464 0

There have been 2,659,903 shares sold and zero shares purchased by the insiders 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.

For full year 2013:

  • Zynga is targeting an adjusted EBITDA margin (adjusted EBITDA as a percentage of bookings) 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
Market Cap: 2.28B 3.00B 6.99B
Employees: 3,058 N/A 9,300
Qtrly Rev Growth (yoy): -0.18 0.22 -0.12
Revenue: 1.22B 2.57B 3.80B
Gross Margin: 0.73 0.72 0.64
EBITDA: 143.73M 1.05B 325.00M
Operating Margin: -0.00 0.38 0.03
Net Income: -119.96M 579.20M 98.00M
EPS: -0.16 4.22 0.31
P/E: N/A 5.29 74.61
PEG (5 yr expected): -2.69 N/A 1.20
P/S: 1.87 1.17 1.84

Zynga's is trading at the same P/S multiple as Electronic Arts.

My analysis

There have been eight 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 11.30%. The stock is trading at a forward P/E ratio of 722.50 and the company has a book value of $2.39 per share. The company's P/B ratio is currently only 1.21, which does not give very attractive risk/reward for a short entry.

2. Guidewire Software (NYSE:GWRE) provides system software to the property and casualty (P&C) insurance industry primarily in the United States, Canada, and Australia.


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Insider selling by insider (last 30 days)

  • Neal Dempsey sold 100,000 shares on June 14-18 and currently holds 140,631 shares or 0.2% of the company. Neal Dempsey has served on the board of directors since 2006.
  • Steven Krausz sold 900 shares on June 19 and currently holds 14,897 shares or less than 0.1% of the company. Steven Krausz has served on the board of directors since 2010.
  • Clifton Weatherford sold 10,000 shares on June 10 and currently holds 62,584 shares or 0.1% of the company. Clifton Weatherford has served on the board of directors since 2007.
  • Craig Ramsey sold 400,000 shares on June 6-11 and currently holds 336,633 shares or 0.6% of the company. Craig Ramsey has served on the board of directors since 2005.
  • Guy Dubois sold 1,767 shares on June 6-10 and currently holds 2,584 shares or less than 0.1% of the company. Guy Dubois has served on the board of directors since 2012.
  • Craig Conway sold 34,000 shares on June 3-7 and currently holds 249,834 shares or 0.4% of the company. Craig Conway has served as the executive chairman of the board of directors since 2010.
  • Kenneth Branson sold 25,000 shares on June 4 pursuant to a Rule 10b5-1 trading plan. Kenneth Branson currently holds 696,532 shares or 1.2% of the company. Kenneth Branson co-founded Guidewire and has served as Director of Product Strategy and on the board of directors since 2010.
  • Priscilla Hung sold 8,200 shares on June 3 pursuant to a Rule 10b5-1 trading plan. Priscilla Hung currently holds 34,852 shares or less than 0.1% of the company. Priscilla Hung serves as Senior Vice President, Operations and Corporate Development.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
June 2013 579,867 0
May 2013 43,200 0
April 2013 62,450 0
March 2013 476,012 0
February 2013 986,486 0
January 2013 103,525 1,000

There have been 2,251,540 shares sold and 1,000 shares purchased by the insiders this year.

Financials

The company reported the fiscal 2013 third-quarter, which ended April 30, financial results on May 28 with the following highlights:

Revenue $68.3 million
Net loss $2.7 million
Cash $203.6 million

Outlook

  • For the fourth quarter of fiscal 2013, the company anticipates total revenue to be in the range of $91 million to $94 million, an increase from prior guidance of $88 million to $92 million. The company anticipates fourth quarter GAAP net income of $1.7 million to $2.6 million, or $0.03 to $0.04 per share.
  • For the full year, the company anticipates revenue to be in the range of $294.8 million to $297.8 million, an increase from prior revenue guidance of $286 million to $292 million. The company anticipates GAAP net income to range from $5 million to $5.9 million, or $0.08 per share to $0.09 per share for the full year.

Competition

Here is a table comparing Guidewire against the Business Software & Services industry.

Company GWRE Industry Average (Business Software & Services)
Market Cap: 2.41B 55.16M
Employees: 837 193.00
Qtrly Rev Growth (yoy): 0.20 0.00
Revenue: 271.33M 71.50M
Gross Margin: 0.55 0.24
EBITDA: 8.88M 1.00M
Operating Margin: 0.02 0.08
Net Income: 6.96M N/A
EPS: 0.11 0.27
P/E: 378.11 12.87
PEG (5 yr expected): 7.49 N/A
P/S: 8.88 2.55

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

My analysis

There have been eight 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 4.40%. The stock is trading at a P/E ratio of 378.11 and a forward P/E ratio of 92.65. The company has a book value of $3.67 per share. The stock has a $32 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $32 target price. I would place a stop loss at $44, which is the all time high. The four main reasons for the proposed short entry are high P/S ratio, high P/E ratio, bearish Point and Figure chart and the intensive insider selling activity.

Source: 2 Tech Stocks With Recent Intensive Insider Selling