Insiders Are Selling Semtech

Oct.28.13 | About: Semtech Corporation (SMTC)

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 (NASDAQ:SMTC) designs, develops, manufactures, and markets analog and mixed signal semiconductor products.

(click to enlarge)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.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Mohan Maheswaran CEO Oct 1-21 6,000 Yes 145,662 shares 4%
James Kim SVP Oct 11 1,500 Yes 5,170 shares + 7,000 options 11%
James Lindstrom Director Oct 11 5,000 No 20,000 shares 20%
James Burra Director Oct 10 10,000 No 0 shares 100%
Click to enlarge

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.

Month Insider selling / shares Insider buying / shares
October 2013 22,500 0
September 2013 18,500 0
August 2013 23,430 0
July 2013 10,000 0
June 2013 105,170 0
May 2013 94,975 0
April 2013 131,726 0
March 2013 110,074 0
February 2013 8,500 0
January 2013 41,500 0
Click to enlarge

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
Click to enlarge

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
Click to enlarge

Competition

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

Company SMTC ADI STM TXN Industry Average (Semiconductor - Integrated Circuits)
Market Cap: 2.08B 14.71B 6.77B 44.81B 364.68M
Employees: 1,433 9,200 48,460 34,151 579.00
Qtrly Rev Growth (yoy): 0.10 -0.01 -0.07 -0.04 0.17
Revenue: 638.90M 2.65B 8.23B 12.16B 203.83M
Gross Margin: 0.61 0.64 0.32 0.51 0.42
EBITDA: 134.48M 893.19M 594.00M 3.83B 13.48M
Operating Margin: 0.13 0.30 -0.04 0.21 0.05
Net Income: 63.60M 651.12M -892.00M 1.88B N/A
EPS: 0.93 2.10 -1.01 1.69 N/A
P/E: 32.94 22.54 N/A 24.16 29.86
PEG (5 yr expected): 1.20 1.99 -6.90 2.32 1.20
P/S: 3.21 5.48 0.82 3.62 1.79
Click to enlarge
Click to enlarge

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.

Company Insider buying / shares Insider selling / shares
ADI 0 784,087
TXN 0 3,966,250
Click to enlarge

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.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SMTC over 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.