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In this article, I will feature one services sector 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%.

Wesco Aircraft Holdings (NYSE:WAIR) distributes and provides supply chain management services to the aerospace industry in the North America and internationally.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Randy SnyderCEODec 17-31139,702Yes45,000 shares + 1,036,155 options11.4%
Hal WeinsteinEVPDec 20-3050,000Yes85,876 shares36.8%
Gregory HannCFODec 2024,696Yes15,035 shares + 386,105 options5.8%

There have been 214,398 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Wesco's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
December 2013214,3980
November 2013154,7350
October 2013222,6420
September 2013325,1800
August 20137,210,2880
July 2013106,0000
June 201300
May 201317,748,3020
April 2013425,0400
March 2013310,9020
February 201300
January 201300

There have been 26,717,487 shares sold, and there have been zero shares purchased by insiders this year.

Financials

Wesco reported the fiscal 2013 full-year, which ended September 30, financial results on November 21 with the following highlights:

Revenue$901.6 million
Net income$104.8 million
Cash$78.7 million
Debt$570.6 million

(Source: Earnings presentation)

Outlook

Wesco's fiscal year 2014 guidance is as follows:

Revenue$975-$1,010 million
Diluted EPS$1.25-$1.31
Adjusted diluted EPS$1.31-$1.37

(click to enlarge)

(Source: Earnings presentation)

Competition

Wesco's competitors include BE Aerospace (NASDAQ:BEAV). Here is a table comparing these two companies.

CompanyWAIRBEAV
Market Cap:2.07B9.01B
Employees:1,3549,500
Qtrly Rev Growth (yoy):0.110.16
Revenue:901.61M3.38B
Gross Margin:0.360.38
EBITDA:192.18M727.70M
Operating Margin:0.200.19
Net Income:104.81M350.20M
EPS:1.093.38
P/E:19.9325.41
P/S:2.292.65

Wesco has slower revenue growth than BE Aerospace. BE Aerospace has also seen intensive insider selling during the last 30 days.

Conclusion

There have been three different insiders selling Wesco, and there have not been any insiders buying Wesco during the last 30 days. Two of these three insiders decreased their holdings by more than 10%. Wesco has an insider ownership of 0.50%.

Before entering short Wesco, I would like to get a bearish confirmation from the Point and Figure chart. The main reason for the proposed short entry is the intensive insider-selling activity.

Source: Wesco Aircraft: 3 Different Insiders Have Sold Shares During The Last 30 Days