SolarCity: 5 Different Insiders Have Sold Shares During The Last 30 Days

| About: SolarCity Corp. (SCTY)

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%.

SolarCity (NASDAQ:SCTY) engages in the design, installation, and sale or lease of solar energy systems to residential and commercial customers, and government entities in the United States.

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Insider selling during the last 30 days

Here is a table of SolarCity'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
John Stanton VP Jan 2 10,000 Yes 0 shares + 83,280 options 10.7%
Linda Keala EVP Dec 31 3,230 Yes 13,852 shares 18.9%
Peter Rive COO Dec 19 40,000 Yes 2,691,625 shares 1.5%
Robert Kelly CFO Dec 12 20,000 Yes 0 shares + 312,014 options 6.0%
Seth Weissman EVP Dec 10 35,000 Yes 158,777 shares + 91,601 options 12.3%
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There have been 108,230 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 SolarCity's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 10,000 0
December 2013 144,216 0
November 2013 0 0
October 2013 0 429,737
September 2013 0 0
August 2013 0 0
July 2013 0 0
June 2013 0 0
May 2013 0 0
April 2013 0 0
March 2013 0 0
February 2013 0 0
January 2013 0 0
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There have been 154,216 shares sold, and there have been 429,737 shares purchased by insiders since January 2013. The month of December has seen the most insider selling.

Financials

SolarCity reported the third-quarter financial results on November 6 with the following highlights:

Revenue $48.6 million
Net income $3.4 million
Cash $160.1 million
Debt $258.8 million
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(Source: Earnings presentation)

Outlook

SolarCity's fourth-quarter guidance is as follows:

Operating Lease Revenue $22-$24 million
Solar Energy System Sale Revenue $18-$22 million
Non-GAAP EPS -$0.55 to -$0.65
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(Source: Earnings presentation)

Competition

SolarCity's competitors include Real Goods Solar (RSOL). Here is a table comparing these two companies.

Company SCTY RSOL
Market Cap: 5.67B 148.61M
Employees: 2,510 334
Qtrly Rev Growth (yoy): 0.52 0.29
Revenue: 141.81M 98.27M
Gross Margin: 0.42 0.23
EBITDA: -68.33M -9.59M
Operating Margin: -0.71 -0.11
Net Income: -64.66M -12.61M
EPS: -1.02 -0.45
P/E: N/A N/A
PEG (5 yr expected): -1.04 N/A
P/S: 38.79 1.33
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SolarCity is trading at a higher P/S ratio than its direct competitor.

Here is a table of Real Goods Solar's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 0 0
December 2013 0 0
November 2013 0 0
October 2013 44,611 0
September 2013 1,000,000 0
August 2013 0 6,188
July 2013 0 0
June 2013 0 0
May 2013 5,994,500 0
April 2013 0 62,111
March 2013 0 0
February 2013 0 0
January 2013 0 0
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In Real Goods Solar, there have been 7,039,111 shares sold, and there have been 68,299 shares purchased by insiders since January 2013. Only SolarCity has seen intensive insider selling during the last 30 days.

Conclusion

There have been five different insiders selling SolarCity, and there have not been any insiders buying SolarCity during the last 30 days. Three of these five insiders decreased their holdings by more than 10%. SolarCity has an insider ownership of 73.30%.

There is one analyst buy rating, five neutral ratings, and one sell rating with an average price target of $64.13. Before entering short SolarCity, I would like to get a bearish confirmation from the Point and Figure chart. The three main reasons for the proposed short entry are bearish analyst price targets, relatively high P/S ratio, and the intensive insider-selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.