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In this article, I will feature one healthcare company 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%.

Perrigo Company (PRGO) develops, manufactures, and distributes over-the-counter and generic prescription pharmaceuticals, infant formulas, nutritional products, and active pharmaceutical ingredients.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Judy BrownCFOOct 11,416Yes17,433 shares7.5%
Joseph PapaCEOSep 2415,000Yes116,655 shares + 3,963 options11.1%
John HendricksonEVPSep 182,161Yes18,279 shares10.6%

There have been 18,577 shares sold by insiders during the last 30 days. 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 Perrigo's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
October 20131,4160
September 201330,3560
August 201341,7080
July 201313,4110
June 201313,7500
May 201327,7000
April 201314,0720
March 201322,0850
February 20138,3280
January 20135,0000

There have been 177,826 shares sold and there have been zero shares purchased by insiders this year.

Financials

Perrigo reported the fiscal 2013 full-year, which ended June 29, financial results on August 15 with the following highlights:

Revenue$3.5 billion
Net income$441.9 million
Cash$779.9 million
Debt$2.0 billion

Outlook

Management expects standalone Perrigo full-year fiscal 2014 adjusted earnings per share to be in a range of $6.35 to $6.60 per diluted share, an increase of 13% to 18% from fiscal 2013's $5.61 per diluted share.

Management expects the acquisition of Elan Corporation to be at least $0.10 accretive to the adjusted earnings per share of standalone Perrigo in fiscal 2014 and between $0.70 and $0.80 accretive in fiscal 2015, including synergies.

Competition

Perrigo's competitors include Actavis (ACT) and Dr. Reddy's Laboratories (RDY). Here is a table comparing these companies.

CompanyPRGOACTRDY
Market Cap:12.20B18.87B6.63B
Employees:9,90017,70016,617
Qtrly Rev Growth (yoy):N/A0.470.12
Revenue:3.54B6.92B2.24B
Gross Margin:0.360.480.52
EBITDA:862.10M1.57B497.15M
Operating Margin:0.200.120.17
Net Income:441.90M-562.90M321.18M
EPS:4.68-4.381.88
P/E:27.69N/A20.69
PEG (5 yr expected):1.411.131.04
P/S:3.452.732.96

Perrigo has the highest P/S ratio among these three companies, which could explain some of the insider selling.

Conclusion

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

Perrigo is trading at a P/E ratio of 27.69 and a forward P/E ratio of 16.10. The company has a book value of $24.78 per share and the stock has a dividend yield of 0.28%.

Before entering short Perrigo, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are relatively high P/S ratio and the intensive insider selling activity.

Source: Insiders Are Selling Perrigo