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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%.

Semtech Corporation (SMTC) designs, develops, manufactures, and markets analog and mixed signal semiconductor products.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Mohan MaheswaranCEOOct 1-216,000Yes145,662 shares4%
James KimSVPOct 111,500Yes5,170 shares + 7,000 options11%
James LindstromDirectorOct 115,000No20,000 shares20%
James BurraDirectorOct 1010,000No0 shares100%

There have been 22,500 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 Semtech's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
October 201322,5000
September 201318,5000
August 201323,4300
July 201310,0000
June 2013105,1700
May 201394,9750
April 2013131,7260
March 2013110,0740
February 20138,5000
January 201341,5000

There have been 566,375 shares sold and there have been zero shares purchased by insiders this year.

Financials

Semtech reported the fiscal 2014 second-quarter, which ended July 28, financial results on August 21 with the following highlights:

Revenue$165.0 million
Net income$19.1 million
Cash$242.0 million
Debt$300.5 million

Outlook

Mohan Maheswaran, Semtech's President and Chief Executive Officer, commented on August 21:

We expect our Q3 results to be negatively impacted by both a reduction in demand and inventory corrections at several of our largest smartphone customers. We anticipate that this weakness will continue through most of the second half.

Semtech's third quarter of fiscal year 2014 outlook is as follows:

Revenue$135.0-$145.0 million
GAAP EPS$0.13-$0.21
Non-GAAP EPS$0.31-$0.37

Competition

Semtech's competitors include Analog Devices (ADI), STMicroelectronics (STM), and Texas Instruments (TXN). Here is a table comparing these companies.

CompanySMTCADISTMTXNIndustry Average (Semiconductor - Integrated Circuits)
Market Cap:2.08B14.71B6.77B44.81B364.68M
Employees:1,4339,20048,46034,151579.00
Qtrly Rev Growth (yoy):0.10-0.01-0.07-0.040.17
Revenue:638.90M2.65B8.23B12.16B203.83M
Gross Margin:0.610.640.320.510.42
EBITDA:134.48M893.19M594.00M3.83B13.48M
Operating Margin:0.130.30-0.040.210.05
Net Income:63.60M651.12M-892.00M1.88BN/A
EPS:0.932.10-1.011.69N/A
P/E:32.9422.54N/A24.1629.86
PEG (5 yr expected):1.201.99-6.902.321.20
P/S:3.215.480.823.621.79

Semtech's P/S and P/E ratios are above the industry average.

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

CompanyInsider buying / sharesInsider selling / shares
ADI0784,087
TXN03,966,250

Analog Devices has also seen intensive insider selling during the past 30 days.

Conclusion

There have been four different insiders selling Semtech and there have not been any insiders buying Semtech during the past 30 days. Three of these four insiders decreased their holdings by more than 10%. Semtech has an insider ownership of 0.80%.

Semtech is trading at a P/E ratio of 32.94 and a forward P/E ratio of 15.41. The company has a book value of $11.10 per share.

Semtech has an $18 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $18 price target. I would place a stop loss at $37.50, which is the 12-year high. The four main reasons for the proposed short entry are bearish Point and Figure chart, high P/E ratio, weak guidance, and the intensive insider selling activity.

Source: Insiders Are Selling Semtech