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:
- The stock was sold by three or more insiders within one month.
- The stock was not purchased by any insiders in the month of intensive selling.
- At least two sellers decreased their holdings by more than 10%.
Adobe Systems Incorporated (NASDAQ:ADBE) operates as a diversified software company worldwide.
Insider selling during the last 30 days
Here is a table of Adobe'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|
|Robert Burgess||Director||Jan 10||94,832||No||50,629 shares||65.2%|
|Mark Garrett||CFO||Jan 7||11,899||Yes||50,107 shares||19.2%|
|Shantanu Narayen||CEO||Jan 2||50,000||Yes||231,672 shares + 488,300 options||6.5%|
|David Wadhwani||SVP||Dec 19||28,010||No||25,875 shares||52.0%|
|John Warnock||Director||Dec 16||20,000||No||784,211 shares||2.5%|
|Edward Barnholt||Director||Dec 16||50,000||No||25,124 shares||66.6%|
There have been 254,741 shares sold by insiders during the last 30 days. Mark Garrett and Shantanu Narayen sold shares 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 Adobe's insider-trading activity by calendar month.
|Month||Insider selling / shares||Insider buying / shares|
There have been 9,051,964 shares sold, and there have been 5,000 shares purchased by insiders since January 2013.
Adobe reported the fiscal 2013 full-year, which ended November 29, financial results on December 12 with the following highlights:
|Net income||$290.0 million|
Adobe's guidance is as follows:
|Revenue||$950-$1,000 million||$4.1 billion|
(Source: Earnings presentation)
Adobe has the highest P/S ratio among these four companies.
Here is a table of these competitors' insider-trading activities during the last 30 days.
|Company||Insider buying / shares||Insider selling / shares|
Only Adobe has seen intensive insider selling during the last 30 days.
There have been six different insiders selling Adobe, and there have not been any insiders buying Adobe during the last 30 days. Four of these six insiders decreased their holdings by more than 10%. Adobe has an insider ownership of 0.38%.
Before entering short Adobe, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are relatively high P/S ratio, and the intensive insider-selling activity.
Disclosure: I am short AAPL, . 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.