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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%.

Automatic Data Processing (ADP) provides technology-based outsourcing solutions to employers and vehicle retailers and manufacturers worldwide.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Carlos RodriguezCEOJan 2-347,500Yes130,084 shares + 142,500 options14.8%
Anish RajpariaVPJan 2-315,975Yes36,497 shares + 5,000 options27.8%
Jan SiegmundVPJan 228,170Yes42,990 shares39.6%
Steven AnenenVPJan 254,314Yes72,079 shares43.0%
Regina LeeVPJan 253,555Yes107,928 shares33.2%
Michael BonartiVPJan 29,290Yes23,845 shares28.0%
Dermot O'BrienVPJan 26,600Yes20,824 shares + 22,500 options13.2%
John AyalaVPJan 24,097Yes11,832 shares + 775 options24.5%
Edward FlynnVPJan 210,340Yes33,341 shares23.7%
Alan SheinessVPJan 2853Yes45,004 shares1.9%

There have been 230,694 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 Automatic Data Processing's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
January 2014230,6940
December 201300
November 201335,2570
October 201300
September 201300
August 201316,5710
July 201300
June 201300
May 201323,4240
April 201300
March 2013108,6490
February 201310,0690
January 201328,6900

There have been 453,354 shares sold, and there have been zero shares purchased by insiders since January 2013. January 2014 has seen the most insider selling.

Financials

Automatic Data Processing reported the fiscal 2014 first-quarter, which ended September 30, financial results on October 30 with the following highlights:

Revenue$2.8 billion
Net income$328.6 million
Cash$1.7 billion
Debt$2.8 billion

Outlook

Automatic Data Processing's fiscal 2014 guidance is as follows:

Revenue growth7%
EPS growth8%-10%

Competition

Automatic Data Processing's competitors include Insperity (NSP), and Paychex (PAYX). Here is a table comparing these companies.

CompanyADPNSPPAYX
Market Cap:38.87B922.82M16.47B
Employees:60,0002,20012,600
Qtrly Rev Growth (yoy):0.080.060.07
Revenue:11.51B2.23B2.40B
Gross Margin:0.490.180.72
EBITDA:2.41B87.19M1.04B
Operating Margin:0.180.030.39
Net Income:1.39B35.09M589.50M
EPS:2.941.401.61
P/E:27.4625.7828.09
PEG (5 yr expected):2.551.732.65
P/S:3.340.416.85

Automatic Data Processing has the second-highest P/S ratio among these three companies.

Here is a table of these competitors' insider-trading activities during the last 30 days.

CompanyInsider buying / sharesInsider selling / shares
NSP036,500
PAYX

0

0

Only Automatic Data Processing has seen intensive insider selling during the last 30 days.

Conclusion

There have been 10 different insiders selling Automatic Data Processing, and there have not been any insiders buying Automatic Data Processing during the last 30 days. Nine of these 10 insiders decreased their holdings by more than 10%. Automatic Data Processing has an insider ownership of 0.20%.

There are 10 analyst buy ratings, 12 neutral ratings, and two sell ratings with an average price target of $78.34. Before entering short Automatic Data Processing, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are bearish analyst price targets, and the intensive insider-selling activity.

Source: Automatic Data Processing: 10 Different Insiders Have Sold Shares This Year