Rackspace: 3 Different Insiders Have Sold Shares This Month

Nov.22.13 | About: Rackspace Hosting, (RAX)

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%.

Rackspace Hosting (NYSE:RAX) provides cloud computing services, managing Web-based IT systems for small and medium-sized businesses, and large enterprises worldwide.

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Insider selling during the last 30 days

Here is a table of Rackspace'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
Alan Schoenbaum SVP Nov 13-18 74,028 Yes 71,294 shares 50.9%
James Bishkin Director Nov 13 20,000 Yes 57,886 shares 25.7%
Lanham Napier CEO Nov 13-15 902,238 Yes

4,567,131 shares

13.0%
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There have been 996,266 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 Rackspace's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
November 2013 996,266 0
October 2013 6,500 0
September 2013 26,735 0
August 2013 300,182 0
July 2013 4,000 0
June 2013 0 0
May 2013 0 0
April 2013 9,000 0
March 2013 5,970 0
February 2013 29,165 0
January 2013 31,000 0
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There have been 1,408,818 shares sold and there have been zero shares purchased by insiders this year. The month of November has seen the most insider selling.

Financials

Rackspace reported the third-quarter financial results on November 11 with the following highlights:

Revenue $388.6 million
Net income $16.3 million
Cash $270.0 million
Debt $72.6 million
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Outlook

Rackspace's guidance for the fourth quarter is sequential revenue growth between 3% and 5%, which would result in revenues between $400 million and $408 million.

Competition

Rackspace's competitors include AT&T (NYSE:T), Equinix (NASDAQ:EQIX), and CenturyLink (NYSE:CTL). Here is a table comparing these companies.

Company RAX T EQIX CTL
Market Cap: 5.51B 185.43B 7.92B 18.30B
Employees: 4,852 246,740 3,486 47,000
Qtrly Rev Growth (yoy): 0.16 0.02 0.11 -0.01
Revenue: 1.48B 128.17B 2.09B 18.14B
Gross Margin: 0.72 0.56 0.50 0.61
EBITDA: 413.44M 28.44B 884.94M 7.46B
Operating Margin: 0.11 0.10 0.21 0.16
Net Income: 95.85M 7.48B 76.80M -245.00M
EPS: 0.67 1.37 1.79 -0.40
P/E: 59.36 25.78 88.93 N/A
PEG (5 yr expected): 2.90 2.21 4.23 9.24
P/S: 3.73 1.46 3.80 1.04
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Rackspace has the second-highest P/S ratio among these four companies.

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

Company Insider buying / shares Insider selling / shares
T 10,000 31,091
EQIX 20,000 153,261
CTL 1,500 27,358
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Only Rackspace has seen intensive insider selling during the last 30 days.

Conclusion

There have been three different insiders selling Rackspace and there have not been any insiders buying Rackspace during the last 30 days. All three of these insiders decreased their holdings by more than 10%. Rackspace has an insider ownership of 1.30%.

Rackspace is trading at a P/E ratio of 59.36, and a forward P/E ratio of 54.16. The company has a book value of $6.77 per share.

Rackspace has a $26 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $26 price target. I would place a stop loss at $54, which is the six-month high. The three main reasons for the proposed short entry are bearish Point and Figure chart, high P/E ratio, and the intensive insider selling activity.

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