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In this article, I will feature one home furnishing store 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%.

Restoration Hardware (RH) engages in the retail of home furnishings.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Eri ChayaDirectorOct 1625,000No58,045 shares30.1%
Ken DunajCOOOct 3-450,000No85,280 shares37.0%
James ChuDirectorSep 303,978,731No0 shares100%

There have been 4,053,731 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 Restoration Hardware's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
October 201375,0000
September 20133,978,7310
August 20131,175,7970
July 20137,836,137100,000
June 201300
May 20139,933,6130
April 201300
March 201300
February 201300
January 201300

There have been 22,999,278 shares sold and there have been 100,000 shares purchased by insiders this year.

Financials

Restoration Hardware reported the fiscal 2013 second-quarter, which ended August 3, financial results on September 10 with the following highlights:

Revenue$382.1 million
Net loss$17.8 million
Cash$15.0 million
Debt$87.6 million

Outlook

Restoration Hardware's guidance for the third quarter of fiscal 2013 is as follows:

Revenue$385-$395 million
Adjusted net income$11.2-$12.0 million
Adjusted diluted EPS$0.27-$0.29

Restoration Hardware's guidance for the fourth quarter of fiscal 2013 is as follows:

Revenue$490-$500 million
Adjusted net income$34.3-$35.5 million
Adjusted diluted EPS$0.81-$0.84

Restoration Hardware's guidance for the fiscal year ending February 1, 2014 is as follows:

Revenue$1.56-$1.58 billion
Adjusted net income$67.6-$69.5 million
Adjusted diluted EPS$1.65-$1.70

Competition

Restoration Hardware's competitors include Macy's (M), and Williams-Sonoma (WSM). Here is a table comparing these companies.

CompanyRHMWSMIndustry Average (Home Furnishing Stores)
Market Cap:2.72B16.89B5.12B2.24B
Employees:2,100175,7007,2003.70K
Qtrly Rev Growth (yoy):0.31-0.010.120.00
Revenue:1.37B27.88B4.22B1.37B
Gross Margin:0.360.400.390.40
EBITDA:91.51M3.73B583.58M91.51M
Operating Margin:0.050.100.100.07
Net Income:-44.67M1.37B271.02MN/A
EPS:-4.253.462.711.03
P/E:N/A12.9919.7419.74
PEG (5 yr expected):1.330.951.481.33
P/S:1.990.611.211.21

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

Here is a table of these competitors' insider-trading activities this year.

CompanyInsider buying / sharesInsider selling / shares
M7,1251,569,559
WSM0215,037

Only Restoration Hardware has seen intensive insider selling during the past 30 days.

Conclusion

There have been three different insiders selling Restoration Hardware and there have not been any insiders buying Restoration Hardware during the past 30 days. All three of these insiders decreased their holdings by more than 10%. Restoration Hardware has an insider ownership of 10.40%.

Restoration Hardware is trading at a forward P/E ratio of 32.70 and the company has a book value of $12.90 per share. Before entering short Restoration Hardware, 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 Restoration Hardware