Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message|
( followers)  

In this article, I will feature one tech stock that has 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%.

Cognizant Technology Solutions (CTSH) provides information technology, consulting, and business process outsourcing services worldwide.

(click to enlarge)

Insider selling during the last 30 days

Here is a table of Cognizant's insider-trading activity during the last 30 days by insider.

NameTitleTrade DateShares SoldRule 10b5-1Current Ownership (shares+options)Decrease In Ownership
Chandra SekaranOfficerSep 13-Oct 163,000Yes and No135,291 shares + 25,000 options28.2%
Steven SchwartzSVPSep 17-2431,995Yes0 shares100%
Karen McLoughlinCFOSep 11-181,723Yes8,773 shares16.4%
Gordon CoburnPresidentSep 1120,000Yes50,330 shares28.4%
Francisco D'SouzaCEOSep 1124,700Yes230,934 shares9.7%

There have been 141,418 shares sold by insiders during the last 30 days. Chandra Sekaran sold 38,000 shares without the Rule 10b5-1 trading plan and he sold 25,000 shares pursuant to the Rule 10b5-1 trading plan. More details about the Rule 10b5-1 trading plan can be found from this link.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
October 201325,0000
September 2013184,3970
August 20132,7510
July 20131,2000
June 20131,4987,500
May 20138970
April 201300
March 201355,9510
February 20134,9370
January 201300

There have been 276,631 shares sold and there have been 7,500 shares purchased by insiders this year. The month of September has seen the most insider selling this year.

Financials

Cognizant reported the second-quarter financial results on August 6, with the following highlights:

Revenue$2.2 billion
Net income$300.4 million
Cash$2.9 billion

Outlook

Cognizant provided the following guidance on August 6:

  • Third-quarter 2013 revenue anticipated to be at least $2.25 billion.
  • Third-quarter 2013 diluted EPS expected to be $1.00 on a GAAP basis and $1.09 on a non-GAAP basis.
  • Fiscal 2013 revenue expected to be at least $8.74 billion, up at least 19% compared to 2012.
  • Fiscal 2013 diluted EPS expected to be at least $3.96 on a GAAP basis, and $4.32 on a non-GAAP basis.

Competition

Cognizant's competitors include Infosys (INFY) and Wipro (WIT). Here is a table comparing these companies.

CompanyCTSHINFYWITIndustry Average (Business Software & Services)
Market Cap:24.71B28.39B25.50B973.22M
Employees:164,300157,263130,0001.65K
Qtrly Rev Growth (yoy):0.200.140.070.34
Revenue:8.02B7.64B7.16B254.77M
Gross Margin:0.410.350.310.54
EBITDA:1.67B2.12B1.49B24.85M
Operating Margin:0.190.250.180.09
Net Income:1.14B1.73B1.19BN/A
EPS:3.753.020.510.35
P/E:21.8516.4520.35111.12
PEG (5 yr expected):1.101.231.962.06
P/S:3.083.723.563.55

Cognizant has the lowest P/S ratio among these three companies.

Conclusion

There have been five different insiders selling Cognizant and there have not been any insiders buying Cognizant during the past 30 days. Four of these five insiders decreased their holdings by more than 10%. Cognizant has an insider ownership of 0.20%.

Cognizant is trading at a P/E ratio of 21.85 and a forward P/E ratio of 17.51. The company has a book value of $17.65 per share.

Before entering short Cognizant, 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.

Source: Insiders Are Selling Cognizant Technology Solutions