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There was intensive insider selling in Zynga (ZNGA) in April 2012 at $11.64. The stock is currently trading at $2.78 or 76.1% below the April 2012 price level.

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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 tech stocks that met these three criteria of intensive insider selling in the last 30 days.

1. Applied Materials (AMAT) provides manufacturing equipment, services, and software to the semiconductor, flat panel display, solar photovoltaic [PV], and related industries worldwide.

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Insider selling by insider (last 30 days)

  • Alexander Karsner sold 37,550 shares on June 25 and currently holds 48,873 shares or less than 0.1% of the company. Alexander Karsner serves as a director of the company.
  • Gary Dickerson sold 265,008 shares on May 31 and currently holds 1,450,651 shares or 0.1% of the company. Gary Dickerson was named president of Applied Materials in June 2012.
  • Stephen Forrest sold 5,000 shares on May 30 and currently holds 89,145 shares or less than 0.1% of the company. Stephen Forrest serves as a director of the company.
  • Randhir Thakur sold 225,000 shares on May 29 and currently holds 1,032,460 shares and 100,000 options or less than 0.1% of the company. Randhir Thakur is executive vice president and general manager of the Silicon Systems Group at Applied Materials.

Insider selling by calendar month

Here is a table of Applied Materials' insider trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
June 201337,5500
May 2013849,2690
April 201323,9540
March 2013257,3020
February 2013619,0010
January 201300

There have been 1,787,076 shares sold and zero shares purchased by the insiders this year.

Financials

The company reported the fiscal 2013 second-quarter, which ended April 28, financial results on May 16 with the following highlights:

Revenue$2.0 billion
Non-GAAP adjusted net income$199 million
Cash$2.9 billion
Debt$1.9 billion

Outlook

For the third quarter of fiscal 2013, Applied expects net sales to be up slightly from the previous quarter. The company expects non-GAAP adjusted EPS to be in the range of $0.16 to $0.20.

Competition

Applied Materials' competitors include KLA-Tencor Corporation (KLAC) and Lam Research Corporation (LRCX). Here is a table comparing these companies.

CompanyAMATKLACLRCX
Market Cap:17.93B9.24B7.21B
Employees:14,5265,7106,500
Qtrly Rev Growth (yoy):-0.22-0.130.28
Revenue:7.54B3.02B3.35B
Gross Margin:0.390.570.41
EBITDA:1.19B959.94M504.61M
Operating Margin:0.100.290.07
Net Income:-392.00M656.26M46.24M
EPS:-0.323.860.28
P/E:N/A14.43158.92
PEG (5 yr expected):2.591.711.90
P/S:2.383.062.18

Applied Materials has the second highest P/S ratio among these three companies.

My analysis

There have been four 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 0.60%. The stock is trading at a forward P/E ratio of 13.19. The company has a book value of $5.73 per share and the stock has a dividend yield of 2.68%. 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. EPAM Systems (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)

  • Ilya Cantor sold 42,530 shares on June 3-27 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.
  • Karl Robb sold 69,000 shares on June 6-27 pursuant to a Rule 10b5-1 trading plan. Karl Robb currently controls 126,597 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 241,495 shares on May 28 - June 25 pursuant to a Rule 10b5-1 trading plan. Arkadiy Dobkin currently holds 3,694,287 shares or 8.2% of the company. Arkadiy Dobkin is the co-founder, CEO and President of EPAM Systems.
  • Russia Partners II LP sold 846,209 shares on June 6-10 and currently controls 17,093,464 shares or 38.1% of EPAM Systems.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
June 20131,061,7390
May 2013186,2350
April 201336,0000
March 2013204,3100
February 2013270,6580
January 2013197,0800

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

Financials

The company reported the first-quarter financial results on May 8 with the following highlights:

Revenue$124.2 million
Net income$12.7 million
Cash$102.8 million

Outlook

  • 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.
  • For the second quarter of 2013, EPAM expects revenues between $131 million and $133 million, representing a growth rate of 26% to 28% over second quarter 2012 revenues. Second quarter 2013 non-GAAP diluted EPS is expected to be in the range of $0.38 to $0.40 based on an estimated second quarter 2013 weighted average of 48.0 million diluted shares.

Competition

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

CompanyEPAMCTSHINFY
Market Cap:1.23B18.89B23.54B
Employees:10,043162,700N/A
Qtrly Rev Growth (yoy):0.320.180.09
Revenue:463.61M7.66B7.40B
Gross Margin:0.380.410.36
EBITDA:82.52M1.57B2.13B
Operating Margin:0.150.180.26
Net Income:54.86M1.09B1.72B
EPS:1.173.583.02
P/E:23.3317.4913.64
PEG (5 yr expected):0.700.871.03
P/S:2.692.493.20

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

My analysis

There have been four 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 8.60%. There are seven analyst buy ratings, two neutral ratings and zero sell ratings with an average target price of $25.88. The stock is trading at a P/E ratio of 23.33 and a forward P/E ratio of 14.35. The company has a book value of $6.77 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 bearish analyst target prices and the intensive insider selling activity.

Source: 2 Tech Stocks With Recent Intensive Insider Selling