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There was intensive insider selling in Facebook (FB) in May 2012 when the company had its initial public offering at $37.58. The stock plunged all the way to $17.55 in September 2012 or 53.3% below the IPO price.

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

1. Facebook operates as a social networking company worldwide.

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Insider selling by insider (last 30 days)

  • Michael Schroepfer sold 405,000 shares on July 1-30 pursuant to a Rule 10b5-1 trading plan. Michael Schroepfer currently holds 763,004 shares or less than 0.1% of the company. Michael Schroepfer is Vice President, Engineering at Facebook.
  • Colin Stretch sold 43,404 shares on July 9-30 pursuant to a Rule 10b5-1 trading plan. Colin Stretch currently holds 121,119 shares or less than 0.1% of the company. Colin Stretch is Vice President, General Counsel & Secretary.
  • Jas Athwal sold 26,000 shares on July 3-30 pursuant to a Rule 10b5-1 trading plan. Jas Athwal currently holds 152,029 shares or less than 0.1% of the company. Jas Athwal is Chief Accounting Officer.
  • Sheryl Sandberg sold 352,904 shares on July 10-23 pursuant to a Rule 10b5-1 trading plan. Sheryl Sandberg currently controls 16,710,868 shares or 0.7% of the company. Sheryl Sandberg is Chief Operating Officer at Facebook.
  • David Ebersman sold 46,800 shares on July 2-17 pursuant to a Rule 10b5-1 trading plan. David Ebersman currently controls 3,873,485 shares or 0.2% of the company. David Ebersman is the Chief Financial Officer of Facebook.
  • David Fischer sold 24,000 shares on July 9-10 pursuant to a Rule 10b5-1 trading plan. David Fischer currently holds 532,681 shares or less than 0.1% of the company. David Fischer is Vice President Marketing at Facebook.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
July 2013898,1080
June 2013602,1640
May 20131,886,1380
April 2013573,6500
March 2013636,5130
February 20133,324,0030
January 2013931,1420

There have been 8,851,718 shares sold and there have been zero shares purchased by the insiders this year.

Financials

The company reported the second-quarter financial results on July 24 with the following highlights:

Revenue$1.8 billion
Net income [GAAP]$333 million
Net income [non-GAAP]$488 million
Monthly active users1.2 billion
Cash$10.3 billion
Debt$2.2 billion

Competition

Facebook's competitors include Google (GOOG) and Microsoft (MSFT). Here is a table comparing these companies.

CompanyFBGOOGMSFT
Market Cap:91.54B300.75B263.96B
Employees:4,61944,777N/A
Qtrly Rev Growth (yoy):0.530.160.10
Revenue:6.12B55.80B77.85B
Gross Margin:0.740.570.74
EBITDA:2.70B17.00B30.52B
Operating Margin:0.300.240.34
Net Income:554.00M10.94B21.86B
EPS:0.2234.572.58
P/E :174.9726.1312.29
PEG (5 yr expected):1.771.431.32
P/S:14.755.403.39

Facebook has the highest P/S ratio among these three companies.

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. There are 27 analyst buy ratings, 11 neutral ratings and two sell ratings with an average target price of $37.06. The stock is trading at a P/E ratio of 174.97 and a forward P/E ratio of 41.24. The company has a book value of $5.13 per share. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The four main reasons for the proposed short entry are high P/S ratio, high P/E ratio, bearish analyst target prices and the intensive insider selling activity.

2. LinkedIn Corporation (LNKD) operates an online professional network.

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Insider selling by insider (last 30 days)

  • Jeff Weiner sold 74,000 shares on July 9-22 pursuant to a Rule 10b5-1 trading plan. Jeff Weiner currently holds 188,826 shares and 1,471,911 options or 1.5% of the company. Jeff Weiner is the CEO of LinkedIn.
  • Reid Hoffman sold 166,668 shares on July 9-22 pursuant to a Rule 10b5-1 trading plan. Reid Hoffman currently controls 16,489,899 shares or 15.1% of the company. Reid Hoffman is Executive Chairman and a co-founder of LinkedIn.
  • Erika Rottenberg sold 8,000 shares on July 2-18 pursuant to a Rule 10b5-1 trading plan. Erika Rottenberg currently holds 67,621 shares and 52,225 options or 0.1% of the company. Erika Rottenberg is Vice President, General Counsel and Secretary.
  • David Sze sold 31,874 shares on July 1-15 pursuant to a Rule 10b5-1 trading plan. David Sze currently holds 248,812 shares or 0.2% of the company. David Sze became a board member of LinkedIn in September 2004.
  • Michael Gamson sold 8,747 shares on July 15 pursuant to a Rule 10b5-1 trading plan. Michael Gamson currently holds 132,789 shares and 171,736 options or 0.3% of the company. Michael Gamson is Senior Vice President, Global Solutions.
  • Leslie Kilgore sold 5,000 shares on July 2-5 pursuant to a Rule 10b5-1 trading plan. Leslie Kilgore currently holds 42,644 shares or less than 0.1% of the company. Leslie Kilgore has served on LinkedIn's board of directors since March 2010.
  • David Henke sold 17,708 shares on July 5 pursuant to a Rule 10b5-1 trading plan. David Henke currently holds 27,215 shares and 70,838 options or 0.1% of the company. David Henke is Senior Vice President, Operations.
  • Deep Nishar sold 11,458 shares on July 5 pursuant to a Rule 10b5-1 trading plan. Deep Nishar currently holds 61,393 shares and 40,000 options or 0.1% of the company. Deep Nishar is Senior Vice President, Products and User Experience.
  • Kevin Scott sold 6,250 shares on July 8 pursuant to a Rule 10b5-1 trading plan. Kevin Scott currently holds 38,369 shares and 118,749 options or 0.1% of the company. Kevin Scott is Senior Vice President, Engineering.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
July 2013329,7050
June 2013361,2680
May 2013400,5930
April 2013347,7060
March 2013398,0770
February 2013474,0200
January 2013427,6250

There have been 2,738,994 shares sold and there have been zero shares purchased by the insiders this year.

Financials

The company reported the second-quarter financial results on August 1 with the following highlights:

Revenue$363.7 million
Net income$3.7 million
Cash$873.4 million

Outlook

  • Q3 2013 Guidance: Revenue is expected to range between $367 million and $373 million. Adjusted EBITDA is expected to range between $81 million and $83 million. The company expects depreciation and amortization in the range of $38 million to $40 million, and stock-based compensation in the range of $49 million to $51 million.
  • Full Year 2013 Guidance: Revenue was revised upwards to range between $1.455 billion and $1.475 billion. Adjusted EBITDA was also revised upwards to range between $340 million and $355 million. The company expects depreciation and amortization in the range of $135 million to $140 million, and stock-based compensation in the range of $183 million to $188 million.

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Competition

LinkedIn's competitors include Facebook and Monster Worldwide (MWW). Here is a table comparing these companies.

CompanyLNKDFBMWW
Market Cap:25.75B91.40B622.42M
Employees:3,7794,6195,000
Qtrly Rev Growth (yoy):0.720.53-0.09
Revenue:1.11B6.12B868.63M
Gross Margin:0.870.740.55
EBITDA:149.47M2.70B135.55M
Operating Margin:0.060.300.08
Net Income:39.24M554.00M55.93M
EPS:0.260.22-2.31
P/E:893.98174.24N/A
PEG (5 yr expected):2.461.771.21
P/S:21.2114.750.74

LinkedIn has the highest P/S ratio among these three companies.

My analysis

There have been nine different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. There are 17 analyst buy ratings, 17 neutral ratings and zero sell ratings with an average target price of $205.51. The stock is trading at a P/E ratio of 893.98 and a forward P/E ratio of 101.28. The company has a book value of $9.06 per share. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The four main reasons for the proposed short entry are high P/S ratio, high P/E ratio, bearish analyst target prices and the intensive insider selling activity.

Source: Facebook, LinkedIn: Recent Intensive Insider Selling