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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%.

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.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
John StantonVPJan 210,000Yes0 shares + 83,280 options10.7%
Linda KealaEVPDec 313,230Yes13,852 shares18.9%
Peter RiveCOODec 1940,000Yes2,691,625 shares1.5%
Robert KellyCFODec 1220,000Yes0 shares + 312,014 options6.0%
Seth WeissmanEVPDec 1035,000Yes158,777 shares + 91,601 options12.3%

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.

MonthInsider selling / sharesInsider buying / shares
January 201410,0000
December 2013144,2160
November 201300
October 20130429,737
September 201300
August 201300
July 201300
June 201300
May 201300
April 201300
March 201300
February 201300
January 201300

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

(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

(click to enlarge)

(Source: Earnings presentation)

Competition

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

CompanySCTYRSOL
Market Cap:5.67B148.61M
Employees:2,510334
Qtrly Rev Growth (yoy):0.520.29
Revenue:141.81M98.27M
Gross Margin:0.420.23
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/AN/A
PEG (5 yr expected):-1.04N/A
P/S:38.791.33

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.

MonthInsider selling / sharesInsider buying / shares
January 201400
December 201300
November 201300
October 201344,6110
September 20131,000,0000
August 201306,188
July 201300
June 201300
May 20135,994,5000
April 2013062,111
March 201300
February 201300
January 201300

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.

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