Insiders Are Selling Cognizant Technology Solutions

Oct.10.13 | About: Cognizant Technology (CTSH)

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 (NASDAQ:CTSH) provides information technology, consulting, and business process outsourcing services worldwide.

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Insider selling during the last 30 days

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

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership (shares+options) Decrease In Ownership
Chandra Sekaran Officer Sep 13-Oct 1 63,000 Yes and No 135,291 shares + 25,000 options 28.2%
Steven Schwartz SVP Sep 17-24 31,995 Yes 0 shares 100%
Karen McLoughlin CFO Sep 11-18 1,723 Yes 8,773 shares 16.4%
Gordon Coburn President Sep 11 20,000 Yes 50,330 shares 28.4%
Francisco D'Souza CEO Sep 11 24,700 Yes 230,934 shares 9.7%
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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.

Month Insider selling / shares Insider buying / shares
October 2013 25,000 0
September 2013 184,397 0
August 2013 2,751 0
July 2013 1,200 0
June 2013 1,498 7,500
May 2013 897 0
April 2013 0 0
March 2013 55,951 0
February 2013 4,937 0
January 2013 0 0
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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
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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 (NYSE:INFY) and Wipro (NYSE:WIT). Here is a table comparing these companies.

Company CTSH INFY WIT Industry Average (Business Software & Services)
Market Cap: 24.71B 28.39B 25.50B 973.22M
Employees: 164,300 157,263 130,000 1.65K
Qtrly Rev Growth (yoy): 0.20 0.14 0.07 0.34
Revenue: 8.02B 7.64B 7.16B 254.77M
Gross Margin: 0.41 0.35 0.31 0.54
EBITDA: 1.67B 2.12B 1.49B 24.85M
Operating Margin: 0.19 0.25 0.18 0.09
Net Income: 1.14B 1.73B 1.19B N/A
EPS: 3.75 3.02 0.51 0.35
P/E: 21.85 16.45 20.35 111.12
PEG (5 yr expected): 1.10 1.23 1.96 2.06
P/S: 3.08 3.72 3.56 3.55
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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.

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.