2 Service-Sector Stocks With Recent Intensive Insider Selling

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 |  Includes: DISH, NFLX
by: Markus Aarnio

The service sector has been the best-performing group year to date with a gain of 24.4%.

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In this article, I will feature two service-sector companies that have seen intensive insider selling during the last 30 days. 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%.

1. Netflix (NASDAQ:NFLX) provides Internet television network service that enables subscribers to stream TV shows and movies directly on TVs, computers, and mobile devices in the United States and internationally.

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Insider selling by insider (last 30 days)

  • Tawni Cranz sold 408 shares on July 12 pursuant to duly adopted trading plan under Rule 10b5-1(c). Tawni Cranz currently holds zero shares of the company. Tawni Cranz became Chief Talent Officer in October 2012.
  • David Hyman sold 6,125 shares on July 12 pursuant to duly adopted trading plan under Rule 10b5-1(c). David Hyman currently holds 5,230 shares or less than 0.1% of the company. David Hyman has served as Netflix General Counsel since 2002.
  • George Battle sold 24,000 shares on July 12 pursuant to duly adopted trading plan under Rule 10b5-1(c). George Battle currently controls 9,500 shares or less than 0.1% of the company. George Battle has served as one of the company's directors since June 2005.
  • David Wells sold 5,661 shares on July 11 pursuant to duly adopted trading plan under Rule 10b5-1(c). David Wells currently holds zero shares of the company. David Wells has served as the company's Chief Financial Officer since December 2010.
  • William Holmes sold 750 shares on July 1 pursuant to duly adopted trading plan under Rule 10b5-1(c). William Holmes currently holds 573 options or less than 0.1% of the company. William Holmes is Chief Business Development Officer.
  • Reed Hastings sold 15,238 shares on June 24 pursuant to duly adopted trading plan under Rule 10b5-1(c). Reed Hastings currently controls 1,042,215 shares or 1.9% of the company. Reed Hastings is Founder and CEO of Netflix.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
July 2013 36,944 0
June 2013 15,988 0
May 2013 152,985 0
April 2013 512,814 0
March 2013 750 0
February 2013 1,604 0
January 2013 398,971 0
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There have been 1,120,056 shares sold and there have been zero shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on April 22 with the following highlights:

Revenue $1.0 billion
Net income $2.7 million
Cash $1.0 billion
Debt $700.0 million
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Outlook

The company expects Q2 net income of $14 million to $29 million.

Competition

The market for entertainment video is intensely competitive and subject to rapid change. Many consumers maintain simultaneous relationships with multiple entertainment video providers and can easily shift spending from one provider to another. Netflix's principal competitors vary by geographic region and include:

  • Multichannel video programming distributors [MVPDs] with free TV Everywhere applications such as HBO GO or Showtime Anytime in the U.S. and SkyGo or BBC iPlayer in the U.K., and other on demand content from cable providers, such as Time Warner and Comcast; direct broadcast satellite providers, such as DIRECTV and Echostar; and telecommunication providers such as AT&T and Verizon
  • "Over-the-top" Internet movie and TV content providers, such as, Amazon.com's Prime Video, Hulu.com and Hulu Plus, LOVEFiLM, Clarovideo, Viaplay, and Google's YouTube
  • Transactional content providers, such as Apple's iTunes, Amazon's Instant Video, GooglePlay, and Vudu
  • DVD rental outlets and kiosk services, such as Blockbuster and Redbox
  • Entertainment video retailers, such as Best Buy, Wal-Mart and Amazon.com

My analysis

There have been six 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 2.21%. There are 11 analyst buy ratings, 17 neutral ratings and six sell ratings with an average target price of $211.53. The stock is trading at a P/E ratio of 620.19 and a forward P/E ratio of 85.80. The company has a book value of $14.52 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 high P/E ratio, bearish analyst target prices and the intensive insider selling activity.

2. Dish Network Corporation (NASDAQ:DISH) offers direct broadcast satellite subscription television services in the United States.

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Insider selling by insider (last 30 days)

  • Paul Orban sold 35,210 shares on June 27 - July 1 pursuant to a Rule 10b5-1 trading plan. Paul Orban currently holds 164 shares and 100,000 options or less than 0.1% of company. Paul Orban is Senior Vice President and Corporate Controller.
  • Stanton Dodge sold 20,000 shares on July 1 pursuant to a Rule 10b5-1 trading plan. Stanton Dodge currently holds 186 shares and 100,000 options or less than 0.1% of company. Stanton Dodge serves as Executive Vice President and General Counsel of DISH.
  • Bernard Han sold 195,000 shares on June 28 pursuant to a Rule 10b5-1 trading plan. Bernard Han currently holds 6,170 shares and 210,000 options or less than 0.1% of company. Bernard Han is Executive Vice President and Chief Operating Officer.
  • Thomas Cullen sold 30,000 shares on June 27 pursuant to a Rule 10b5-1 trading plan. Thomas Cullen currently holds 160,000 options or less than 0.1% of company. Thomas Cullen serves as Executive Vice President of DISH Network.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
July 2013 25,210 0
June 2013 259,000 0
May 2013 160,750 0
April 2013 399,180 0
March 2013 109,000 0
February 2013 50,748 0
January 2013 4,210 0
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There have been 1,008,098 shares sold and there have been zero shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on May 9 with the following highlights:

Revenue $3.6 billion
Net income $216 million
Cash $7.1 billion
Debt $11.9 billion
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Competition

Dish's competitors include Comcast Corporation (NASDAQ:CMCSA) and DirecTV (DTV). Here is a table comparing these companies.

Company DISH CMCSA DTV
Market Cap: 20.57B 115.78B 36.15B
Employees: 35,000 129,000 27,200
Qtrly Rev Growth (yoy): -0.01 0.03 0.08
Revenue: 14.24B 63.00B 30.27B
Gross Margin: 0.39 0.68 0.48
EBITDA: 2.87B 20.32B 7.41B
Operating Margin: 0.13 0.20 0.17
Net Income: 491.98M 6.42B 2.91B
EPS: 1.09 2.37 4.71
P/E: 41.66 18.54 13.74
PEG (5 yr expected): 3.55 1.04 0.58
P/S: 1.43 1.84 1.20
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Dish 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 0.10%. There are 10 analyst buy ratings, six neutral ratings and zero sell ratings with an average target price of $43.24. The stock is trading at a P/E ratio of 41.66 and a forward P/E ratio of 20.39. The company has a book value of $0.64 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 relatively high P/E ratio, bearish analyst target prices and the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.